The GDP estimate of GDPNow crashed on February 28. Gold played a big Impact.
GDPNow crashed from +2.3 percent to -1.5 percent, then continued to -2.8 percent on March 3.
Gold played a role in the first decline but not the second.
An Email exchange with Pat Higgins, creator of GDPNow explains.
Mish to Pat Higgins
Hi Pat. That’s an interesting reaction to GDPNow on February 28.
The Change In Private Inventories (CIPI) did not even budge.
Do you have some thoughts what the trade data might mean looking ahead, also CIPI?
Thanks.
Reply from Pat Higgins
Hi Mish,
I can’t speculate on the forecast of the data in hand (much of which is through January) beyond noting that the model statistically generates forecasts of that data.
I will note that the model doesn’t adjust for gold imports/exports. In the GDP accounts, the BEA does make adjustments for gold as described on pages 8-13 and 8-14 of https://www.bea.gov/resources/methodologies/nipa-handbook/pdf/chapter-08.pdf when the translate the Census data on imports/exports the GDP based measures.
The advance international trade report on goods doesn’t have details beyond the major categories, but additional data on gold imports/exports will be included in the full report released next Thursday. But as mentioned, the model doesn’t make adjustments based on those gold imports/exports.
Best regards,
Pat
BEA Adjustments for Gold
Gold is used for two purposes: for industrial demand (as an input into the production of goods and services, such as jewelry, watches, and electronic equipment) and for investment (as a store of wealth and a hedge against inflation). In the NIPAs, all domestic production of gold, regardless of its final use, is included in GDP. However, the NIPAs do not treat transactions in valuables, such as gold, as investments in fixed assets, and so investments in gold (other than gold held in industrial inventories) are not reflected in gross domestic purchases (PCE, gross private domestic investment, and government consumption expenditures and gross investment).
For example, if households purchase gold as a form of investment, including that purchase in PCE would distort the analysis of consumption and saving. In contrast, in the international guidelines presented in the System of Accounts 2008 (SNA), the capital account includes the net acquisition of gold and similar valuables (such as antiques and other art objects) that are held as stores of value in gross fixed capital formation as “Acquisitions less disposals of valuables.”
Only a small share of the international transactions in nonmonetary gold recorded in the ITAs is for business or industrial use; most transactions are for investment or other purposes. Consequently, the NIPA estimates for exports and imports of nonmonetary gold are not based on the ITA estimates. Instead, the NIPAs incorporate a special adjustment for transactions in gold.
Tariff-Related Imports of Gold
The World Gold Council comments You asked, we answered: Is the threat of US tariffs moving the gold market?
In late 2024 COMEX inventories started to rise as concerns grew that tariffs could impact gold imports. This surge of gold imports into the US caught many gold market observers by surprise, as the country is (more or less) self-sufficient in its gold needs, being both a significant producer and a consumer. While gold itself hasn’t been directly targeted, speculation and shifting risk management strategies amid concerns of broad-based tariffs have still had a noticeable impact on prices and trading patterns. This trend has continued into early 2025 and, as of date, COMEX registered and eligible inventories have increased by nearly 300t (9mn oz) and more than 500t (17mn oz), respectively.
Trade data from the Census Bureau suggests that a good portion of gold flowing into the US comes from Switzerland. In turn, some of this gold could have originated in the UK as it needs to be refined from Good Delivery (~400 oz) bars into 1 kg bars – the weight accepted for delivery into COMEX futures. Other sources of gold include Canada, Latin America, Australia and, to a lesser degree, Hong Kong. And then there’s gold from domestic mine production – the US being the fifth largest producer globally – which can be refined locally.
Of course, gold flowing into the US from around the world may limit the amount of gold going into other markets, including London, but we believe that the impact should be temporary. This is especially true as gold has multiple sources of supply – mine production and recycling – spread around the world, reducing the reliance on imported gold to meet local demand in the medium term.
In Summary
Gold has not been a direct target of tariffs, but market reactions to trade uncertainty has driven a significant shift in trading behaviour and impacted the gold price. The movement of gold from London to the US, rising COMEX premiums and concerns over availability were largely the result of risk management decisions rather than true supply issues.
The World Gold Council numbers are stale but possibly more complete in respect to gold than the advance trade data that drove the initial GDPNow reaction on February 28.
In Scramble to Beat Tariffs, Trade Deficit Soars by Amazing 25 Percent
On February 28, I commented In Scramble to Beat Tariffs, Trade Deficit Soars by Amazing 25 Percent
Advance International Trade in Goods
- The international trade deficit was $153.3 billion in January, up $31.2 billion from $122.0 billion in December.
- Exports of goods for January were $172.2 billion, $3.3 billion more than December exports.
- Imports of goods for January were $325.4 billion, $34.6 billion more than December imports.
We will have a better idea of the gold inflow amount on Thursday with a full trade report.
I still don’t know what to do with this mess other than ignore trade data for now.
But even if we exclude trade data, the plunge in GDPNow is still spectacular.
Change in Private Inventories (CIPI)
I was hoping to get a comment from Higgins on CIPI because this surge in imports is certainly not an equal surge in consumer purchases, even after accounting for gold investments.
But as expected and understood, Higgins would not comment on future events.
I do note that the contribution to GDPNow for CIPI was +0.41 on February 14 and it has not changed since!
Factoring Out Imports
Net trade accounts for about -3.0 PP of the decline in GDPNow starting February 28.
If we factor out imports by adding 3.0 PP to the GDPModel model, we arrive at a Mish-adjusted base forecast of +0.20 percent and Real Final Sales of -0.20.
The important number is Real Final Sales not the baseline forecast.
The difference between GDP and RFS is the Change In Private Inventories (CIPI) that nets to zero over time.
That’s one heck of a plunge on RFS from +2.3 to a -3.2 percent, and a Mish-adjusted estimate of -0.2 percent in one week!
For discussion of the report and why other than trade the forecast plunged, please see GDPNow Nowcast Plunges to -2.8 Percent, What’s Going On?