Gold prices reversed losses on Wednesday, after the US economy was shown to have shrunk more than expected in the first three months of 2014, halting a bout of profit-making in the metal.
The US economy contracted at a faster rate than previously projected in the first quarter, shrinking 2.9% in contrast with initial estimates of a 1% drop. It was the biggest three-month plunge since the economic crisis ended five years ago and also cast doubts about the outlook for a 2% growth in 2014, according to the Wall Street Journal.
“The numbers were dismal. People may now start second guessing the Federal Reserve, although I have to believe they knew the math at their meeting last week,” Peter Hug of Kitco Metals said.
Also, gold approached its second quarterly rise in a row, the longest winning streak since 2011, partly because of escalating violence in Iraq and Ukraine, which triggered the precious metal’s haven appeal. During the first quarter that ended March 31, gold prices jumped on concern that the US economy was slowing down.
“The dollar weakness is keeping gold supported. There is also some safe-haven buying because of Iraq,” Phil Streible of Chicago-based J. O’Brien & Associates told Bloomberg in a phone interview.
August-delivery futures added 0.1% to trade at $1,322.60 per ounce as of 1:34 pm on the New York-based Comex. On Tuesday, gold touched $1,326.60, the highest price for a most-active future since April 15.
The metal was down 3.3% last week as policy makers from the Federal Reserve suggested that interest rates will stay around zero percent for quite a while. The central bank cut its bond purchases by an additional $10 billion to $35 billion per month from $85 in 2013.
Data available on the International Monetary Fund’s site showed countries such as Russia, Portugal, Mexico and Kazakhstan boosted their gold reserves in May. Ukraine was among the nations that cut their gold holdings.
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