Gold Gains as U.S. Economic Slowdown Eases Risk of Fed Rate Rise

29-May (Bloomberg) — Gold futures advanced after the U.S. said the economy contracted in the first quarter, easing concern that the Federal Reserve will be quick to raise interest rates for the first time since 2006.

Gross domestic product shrank at a 0.7 percent annualized rate, mostly because of harsh winter weather, the Commerce Department said Friday. The government earlier estimated the economy grew 0.2 percent. With the expansion stalled, the Fed may be inclined to hold interest rates at record lows longer to ensure sustained growth.

The metal swung between year-to-date gains and losses more than 10 times in 2015, as traders tried to gauge when the central bank would boost borrowing costs. Higher interest rates erode the appeal of gold, which doesn’t pay interest, as investors seek higher-yielding assets, including new bonds.
“Talk of the weak numbers is supportive because the gold market was starting to set itself up for a potential June rise, and this reinforces the negative tone,” Frank McGhee, the head dealer at Alliance Financial LLC in Chicago, said in a telephone interview.

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