Gold extends 34-month low rebound for a third day

Gold gained for a third consecutive day after rebounding from a 34-month low on Friday, supported by increased physical demand, which however will not repeat Aprils frenzy buying.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 264.05 per troy ounce, up 0.66% on the day. Prices ranged between days high at $1 266.55 and low of $1 249.85 an ounce, which was hit during the early Asian session. The precious metal settled 1.02% higher yesterday and 2.41% higher on Friday after it rebounded from the 34-month low of $1 180.35 per ounce. Gold lost 4.77% last week and 6.80% the preceding week.

The yellow metal drew support in the past few days as the attractive low prices boosted physical demand, which however is not expected to be that strong like in April when many central banks used the cheap precious metal for asset diversification. India and China also imported larger quantities of the metal, which caused Indias Current Account deficit to widen to a record level, forcing the government to introduce import curbs such as larger taxes in order to limit imports. Meanwhile, gold prices were also pushed up as traders closed out bets on lower prices, known as short position covering.

Huang Fulong, an analyst at CITICS Futures Co. said for Bloomberg: “Physical demand is out there but not on the scale we saw in April. The recent short-covering rally is expected to continue before the U.S. holiday and payrolls data later this week.”

Assets in the SPDR Gold Trust, the largest bullion-backed ETP, held steady for three days after which they fell to 968.3 metric tons yesterday, the lowest since February 2009.

The precious metal has declined 27% this year, 23% of which during the second quarter, amid expectations of an earlier-than-expected scale back of Fed’s monetary easing program. The future of Quantitative Easing has been one of the main factors to determine the greenback’s strength. The dollar trades inversely to raw materials as a stronger U.S. currency reduces commodities’ appeal as an alternative investment and makes them more expensive for foreign currency holders.

Gold was hammered down during the last two weeks as Ben Bernanke, Fed chairman, announced after the latest FOMC meeting that the central bank won’t scale down its monetary easing program just yet, but that is highly possible to happen within the end of the year, if the needed stable recovery signs are provided. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, but sentiment points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops to 7%, which Fed expects to happen around mid-2014.

Investors are now looking ahead into this week’s key U.S. data that will show if the economy’s recovery keeps in line with Fed’s projections. The ISM Non – Manufacturing Composite index is due on Wednesday, coupled with the Trade Account, which is expected to show a 40 billion deficit. Factory Orders will be published on Tuesday. On Wednesday, the ADP Employment Change and Initial Jobless Claims will give a preliminary insight into the U.S. labor market’s state, prior to Friday’s most important Change in Non-Farm Payrolls and Unemployment Rate indicators.

Elsewhere on the precious metals market, silver, platinum and palladium are trading higher on the day. Silver September futures stood at $19.697 per troy ounce at 7:59 GMT, up 0.61%. Prices ranged between days high and low at $19.788 and $19.545 respectively. Platinum for October delivery traded at $1 384.20 an ounce, marking a 0.12% daily gain. Platinum held in range between $1 388.55 and $1 370.15 on the day. Palladium September futures rose by 0.29% by 8:01 GMT, standing at $688.70. Palladium varied between days high and low at $694.10 and $683.30 an ounce respectively.