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US Q3 GDP Revised Downward: How Will the Dollar and Gold React?

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US GDP Q3 ’23 (FINAL) KEY POINTS:

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US Q3 GDP has been revised lower to 4.9%, slightly below 5.2% in the second estimate, but matching the 4.9% initially reported in the advance estimate. The estimate released today is based on more complete source data than were available for the “second” estimate issued last month. The downgrade primarily reflected a downward revision to consumer spending. Imports, which are a subtraction in the calculation of GDP, were revised down as well.

It is important to note though that the increase in real GDP (2.1% increase) reflected increases in consumer spending, private inventory investment, exports, imports, state and local government spending, federal government spending, residential fixed investment, and nonresidential fixed investment.

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It is important to note though that the increase in real GDP (2.1% increase) reflected increases in consumer spending, private inventory investment, exports, imports, state and local government spending, federal government spending, residential fixed investment, and nonresidential fixed investment.

Compared to the second quarter, the acceleration in real GDP in the third quarter primarily reflected an upturn in exports and accelerations in consumer spending and private inventory investment that were partly offset by a deceleration in nonresidential fixed investment. Imports turned up.

Source: US Bureau of Economic Analysis

PERSONAL INCOME

Current-dollar personal income increased $196.2 billion in the third quarter, a downward revision of $22.1 billion from the previous estimate. The increase in the third quarter primarily reflected increases in compensation which was led by private wages and salaries as the US labor market continues its resilience.

The most telling metric and something i have spoken about at length this year as US consumers continued to spend freely, was a drop off in disposable income in Q4. There are signs of this beginning but the robust labor market for now and salaries and wage growth are keeping consumer spending and disposable income supplemented.

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US ECONOMY MOVING FORWARD

The US economy has showed signs of a slowdown of late and todays data print just adds to the narrative. Fed rate cut expectations are likely to be dovishly repriced and if US Core PCE data underwhelms tomorrow this could leave the US Dollar under pressure heading into 2024.

Of course, such repricing is going to continue on a per data release basis, but the signs of a slowdown are definitely growing. This will also rekindle recessionary fears, but initial jobless claims once again beat estimates. At this stage the Fed appear on their way to winning the fight against inflation but there remain external threats which could hamper the last bit of progress needed to get the Fed over the line and inflation below 2%.

MARKET REACTION

The initial market reaction following the news has seen the DXY continue its slide flirting with the most recent swing lows around the 101.75 handle. A break lower than that brings the support area around 100.84 into focus with US PCE Data out tomorrow this could leave the DXY vulnerable and a possible retest of the 100.00 psychological mark.

DXY Daily Chart, October 26, 2023

Source: TradingView, prepared by Zain Vawda

GOLD REACTION

Gold continues to find support and has held the high ground for the majority of the week. However, as I mentioned earlier in the week in my Gold article upside beyond the $2050 remain elusive at this stage. Market participants may be looking at US PCE data out on Friday to provide a jolt of volatility which may spur on a bigger move. Right now, though the range between $2020-$2050 looks likely to hold.

XAU/USD Daily Chart, December 21, 2023

Source: TradingView, prepared by Zain Vawda




of clients are net long.




of clients are net short.

Change in Longs Shorts OI
Daily -4% 5% -1%
Weekly 6% 6% 6%

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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The United States just released its revised GDP numbers for the third quarter of 2021, and the results were not what many were hoping for. The initial estimate of 2% growth has been revised downward to just 1.5%, marking a significant slowdown in economic activity. This downward revision has raised concerns about the strength of the US economy and its impact on both the dollar and gold market. In this article, we will explore how the dollar and gold are likely to react to this latest development and what it means for investors and consumers.

What is GDP and Why Does it Matter?

Gross Domestic Product (GDP) is a measure of a country’s economic output. It represents the total market value of all goods and services produced within the country’s borders over a specific period. In the United States, GDP is released quarterly by the Bureau of Economic Analysis (BEA) and is considered a key indicator of the country’s economic health.

A downward revision in GDP growth signifies that the economy is not growing as strongly as expected, which can have a ripple effect on other aspects of the economy, including the currency and precious metals market.

How Will the Dollar React?

The dollar is likely to weaken in response to the downward revision of GDP growth. This is because a weaker GDP growth indicates slower economic expansion, which may prompt the Federal Reserve to keep interest rates low for a more extended period. Low-interest rates make the dollar less attractive to investors, decreasing its value in comparison to other currencies.

Moreover, a weaker economy leads to decreased demand for the US dollar, as businesses reduce their spending and consumers become more cautious with their money. With less demand for the currency, its value decreases, which can further weaken the dollar exchange rate.

How Will Gold React?

Gold, on the other hand, is likely to see a boost in value in response to the downward revision of US GDP growth. This is because gold is often seen as a safe-haven asset, particularly during times of economic uncertainty. When the economy is struggling, investors tend to flock to safe-haven assets like gold to protect their wealth.

A weaker dollar also makes gold more attractive to international investors. As the dollar weakens, it takes more of the currency to purchase an ounce of gold, making it relatively cheaper for international investors. This increased demand could drive up the price of gold in the global market.

What Does This Mean for Investors?

For investors, the downward revision in US GDP growth means it may be a good time to diversify their portfolio. With a weaker dollar and potential increase in gold prices, it may be wise to consider adding some gold to your portfolio as a hedge against economic uncertainty.

Furthermore, investors may need to pay attention to the Federal Reserve’s monetary policy decisions. If the central bank decides to keep interest rates low for an extended period, it could further weaken the dollar and make gold a more attractive investment option.

For consumers, this may mean higher prices for imported goods, as the weaker dollar makes purchasing goods from other countries more expensive. However, a weaker dollar could also make for more affordable domestic travel and may boost the tourism industry.

Practical Tips for Investors and Consumers

– Keep an eye on the Federal Reserve’s monetary policy decisions and the impact on the dollar and gold markets.

– Consider diversifying your portfolio by adding some gold investments.

– Stay informed about global economic developments that could affect the US dollar and gold prices.

– For consumers, look for opportunities to save money on domestic travel and be prepared for potentially higher prices for imported goods.

The Bottom Line

The downward revision of US GDP growth for the third quarter of 2021 has raised concerns about the strength of the economy and its impact on the dollar and gold markets. A weaker dollar and potential increase in gold prices are among the likely outcomes of this latest development. Investors and consumers will need to stay informed and keep a close eye on the Federal Reserve’s monetary policy decisions to make informed decisions about their investments and spending. As always, diversifying your portfolio and staying informed about economic developments will help you navigate any potential market fluctuations.

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