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Gold gains on Fed comments

metals01Gold marked daily gains on Tuesday as comments by Dallas and Minneapolis Fed presidents curbed speculations of an earlier-than-expected deceleration of the central banks monetary easing program.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery gained 0.48% on the day. The precious metal traded at $1 283.25 a troy ounce at 10:19 GMT, ranging between daily high at $1 288.65 and low of $1 272.75. Last week, the yellow metal shed 6.8% off its value and lost 5.34% on Thursday, June 20 separately.

Gold experienced one of its worst weekly declines as last Wednesday Ben Bernanke announced Feds Quantitative Easing will most likely be scaled down during the second half of the year and come to an end by mid-2014, if economic key points remain in track with expectations. The precious metal crumbled to $1,269.46 last week, the cheapest since Sept. 16, 2010. According to Bloomberg, holdings in exchange-traded products fell to 2,094.647 tons yesterday, the lowest level since June 2010.

An exit from the monetary easing program will deliver a massive shock to gold prices as the precious metal is used mainly as a hedging strategy against inflationary effects. Such can arise as a result of a loose monetary policy, like Quantitative Easing. However, last week U.S. economic data showed the inflation rate in the worlds largest economy was low and stable, which devalued the precious metals. Core CPI, which excludes the more volatile energy and food prices, rose only by 0.2% in May, compared to 0.1% in April and met projections. On an annual basis Core Consumer Price Index also met expectations and remained the same compared to May 2012 at 1.7%. CPI for May was even lower than anticipated and stood at 0.1%, below forecasts for a 0.2% increase.

However, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said on Monday that the central bank was committed to continuing its asset purchasing program until the U.S. jobless rate shrinks further. His statement was also backed by Dallas Fed President, Richard Fisher, who said the recent concern and speculations about a premature stimulus deceleration was overdone.

Market players are speculating whether the attractive lower prices will lure in investors the same way they did in April after the 30-year record slump on April 15-16. That was followed by increased physical demand in India and China and many central banks, which felt the time is right to diversify assets through cheap gold. In fact, demand surged so high that India’s central bank was forced to introduce curbs to gold imports as the country’s current account deficit widened to a record level. As a result, inbound shipment tax for the precious metal was raised to 8%, up from 6%.

James Steel, an analyst at HSBC Securities (USA) Inc. commented on the topic: “Although we expect a positive physical demand response to eventually cushion gold’s drop, we do not believe it will be of the scale or magnitude of the reaction in April. Price-sensitive buyers may wait for a well-defined bottom before entering the market. Turmoil in emerging markets and the prospects of lower growth in China have weighed on bullion.”

Investors are now looking ahead into this week’s key U.S. economic data, which, if positive, will once again spur speculation over an earlier-than-expected Quantitative Easing scale down and will support gold’s bearish sentiment. Durable goods orders, consumer confidence and new home sales are due on Tuesday. Scheduled for Wednesday are the final Q1 GDP and Consumer Spending readings. On Thursday, initial jobless claims will give some preliminary information about the unemployment rate in the U.S.

Elsewhere on the precious metals market, silver, platinum and palladium are all tracking golds movement and trade higher on the day. Silver September futures gained as much as 0.78% today, standing at $19.675 an ounce. Platinum for October delivery traded at $1 355.65 an ounce at 10:16 GMT, up 1.73%. Platinum ranged between days high and low at $1 357.55 and $1 328.05 per ounce respectively. Meanwhile, palladium September futures stood at $673.20, gaining 2.36 for the day. The metal ranged between daily high at $676.40 and low of $659.60 per ounce respectively.

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