Gold rebounded from a unsuccessful challenge of the 1698.90 low from earlier in the week, leaving a potential double bottom 1700.77/1698.90. The yellow metal caught a bid after a modestly better than expected US advance Q3 GDP print improved risk appetite; although the negative revision to Oct consumer sentiment tempered enthusiasm somewhat.
Most of the Q3 GDP gain is attributable to a dramatic rise in government spending, the highest in 3-years. However, disturbingly weak fixed investments in Q3, along with some of the internals in yesterday's Oct durable goods report, suggest a downward revision to Q3 GDP is more likely than not.
The headline GDP print was just good enough to be encouraging, but probably not good enough to get the Fed to refrain from relaunching direct Treasury purchases ahead of year-end. Bloomberg reported earlier in the week that all 21 primary dealers believe the Fed will expand QE3 to include renewed bond buying. And the FOMC reiterated this week that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
Essentially nothing has changed this week. The economy remains sluggish and the Fed is still poking at it, trying to get it to show some life, with uber-accommodative monetary policy that may be further expanded in the near term. That will continue to underpin the gold market.
Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets.
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