New US economic data came out on Friday, January 29, that may impact the Fed’s decision to hike interest rates. The FOMC, as we know, is on track to increase interest rates. They were stuck at zero for almost a decade. After lifting rates by 25 basis points in mid-December, the Fed claims it will maintain a “gradual” pace.
Gold has a close negative relationship to interest rates. Gold, like other precious metals and Treasuries, offers no interim returns. Surging rates negatively impact precious metals, lowering prices as they did in 2015.
The Fed’s decision, however, depends on many parameters—including US economic conditions as well as the overall global impact on the economy. Below is a chart that predicts gold performance against inflation.
The data that came out on Friday showed that the overall economy is in poor health. The advance GDP stood at 0.7%, which was lower than the expected 0.8%. The advance GDP price index calculates the annualized change in the price of all goods and services included in GDP. It’s the broadest measure of inflation. It remained low at 0.8%—below the estimated 1.2%. Negative inflation figures remain a concern for the Fed.
The depressing numbers likely further postponed another rate hike, causing gold to gain approximately 0.03% and close at $1,116.4 per ounce. The SPDR Gold Shares ETF (GLD) and the iShares Gold Trust (IAU) rose 0.38% and 0.28%, respectively, on Friday.