XAUUSD choppy in wake of weak US GDP figures as buck/US yields remain buoyant

• Gold Prices rallied to fresh session highs at $1895 in wake of weak US GDP data. 
• But XAU/USD has since dropped back into the mid-$1880s, as the buck and US yields remain buoyant. 
• Given that backdrop, it likely remains too soon to bet on a gold rebound. 

Spot gold (XAU/USD prices hit fresh session highs at $1895 in wake of the latest much weaker than expected US GDP numbers which showed a surprise decline in economic activity in Q1 2022. However, in volatile trade, XAU/USD has since returned to trade flat on the day in the $1880s, as market participants mull what the latest data means for the US economic outlook and Fed policy. 

Markets React To Weak US GDP Figures

US yields continue to advance in wake of the latest weak GDP growth data, perhaps given the inflation readings released alongside the GDP numbers were stronger than forecast (the GDP Price Index jumped to 8.0% YoY in Q1 from 7.1% in Q4). Markets seem, for now, to have remained confident in the story that the Fed will rapidly raise interest rates in the coming months to get them back to neutral (around 2.5%) by the year’s end. 

That may keep US yields and the US dollar underpinned for now, which may make a recovery in XAU/USD back above $1900 a challenge. But if the US economy does fall into recession at the start of 2022 (two consecutive quarters of negative growth are classed as a recession), then that man deter the Fed from lifting interest rates substantially above the so-called neutral rate of 2.5%.

If the Fed does become increasingly concerned about growth and less willing to tighten to combat inflation, this could be a positive for gold in the long-run. For now, though, the buck’s bull run looks unstoppable, suggesting now isn’t the time to start betting on a rebound in gold just yet. When the dollar appreciates, it makes USD-denominated commodities more expensive for international buyers, thus reducing demand.