The Q2 Was Disastrous. But What’s Next For The Us Economy – And Gold?

The real US GDP plunged with a 31.4 percent annual rate in Q2 of 2020. In that regard, what’s next for the American economy and the gold market?

A Disasterous Q2 For The US Economy, What Will Happen To Gold?

We all know that the second quarter was disastrous for the US economy. And now, it’s official. Last week, the Bureau of Economic Analysis published the third real GDP estimate in the Q2. According to the report, the real GDP decreased at an annual rate of 31.4 percent (slightly better than the second estimate of 31.7-percent plunge), or 9 percent more from the previous quarter and the second quarter of 2019, as the chart below shows. In other words, the US economy has suffered the sharpest contraction since the government started keeping records in 1947.

(Click on image to enlarge)

GDX

Although the report sounds devastating, since it is also terribly old news, nobody really cares, while market players are always future-oriented and focused on a fast recovery. And indeed, the data is encouraging. For example, the consumer Confidence Index has jumped from 86.3 in August to 101.8 in September, which is the highest level since the pandemic started.

Cleveland Fed President Loretta Mester says that the economic recovery is split into the tale of two cities: You have a lot of the economy now where the activity is picking up, but you also have a significant part of the economy - travel, leisure, and hospitality – where a pickup is not visible at all.

Indeed, some data is somewhat discouraging. For example, the September nonfarm payrolls came below expectations (we will elaborate on this in the future), while the Chicago Fed’s national activity index, which measures the overall U.S. economic activity, dropped from 2.54 in July to 0.79 in August. It means that the economy is stagnating or slowing down rather than accelerating. Another important index is New York Recovery Index, which is the combination of five sub-indices that aim to measure the pace of the recovery of the New York. As the chart below points out, the index remains around 50, which means that the city is only halfway back to pre-pandemic levels.

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If you enjoyed the above analysis and would you like to know more about the most important macroeconomic factors influencing the U.S. dollar value and the price of gold, we invite you to read the ...

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