Gold fairly unchanged near three-week high ahead of Bernanke testimony

Gold remained fairly unchanged on Wednesday, trading near last Thursdays three-week high of $1 297.05 per troy ounce. Market players remained cautious, awaiting Federal Reserve Chairman Ben Bernankes two-day testimony to Congress to provide further information about the future of Feds monetary stimulus.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 286.25 per ounce at 8:16 GMT, down 0.32% on the day. Prices held in range between days high at $1 292.65 during Asian trading and low of $1 283.65. The precious metal gained around 0.5% higher on Tuesday, extending this weeks advance to nearly 0.2% after closing 5.09% higher the preceding one. Gold hit a three-week high of $1 297.05 per troy ounce last Thursday.

Gold rose yesterday as the dollar plunged, pressured by a stronger euro and U.S. data which showed consumer prices picked up and inflation showed signs of stabilizing. This reinforced sentiment that Fed will begin tapering its monetary easing program this year, but not imminently. On Wednesday, the dollar index gained, thus laying pressure on gold. The U.S. currency gauge for September settlement stood at 82.75 at 8:28 GMT, up 0.15% on the day. Futures ranged between days high and low of 82.91 and 82.59 respectively. The dollar index settled lower yesterday, extending this week’s decline to 0.32% after falling 1.87% the preceding week.

Lv Jie, an analyst at Cinda Futures Co., said for Bloomberg: “Gold in the very near term will be driven by the performance of the dollar, which hinges on what Bernanke may say about the Fed’s stimulus program.”

Yesterdays U.S. economic data showed inflation has accelerated in June. According to the U.S. Labor Department, consumer prices rose by 0.5% in June, surpassing expectations for a 0.3% gain and May’s 0.1% reading. Year-on-year, CPI surged by 1.8%, outperforming May’s annualized 1.4% gain and expectations for a rise to 1.6%. Gasoline prices accounted for about two thirds of the increase in the indicator.

The government agency also reported that month-on-month Core CPI, which excludes the more volatile energy and food costs, met both expectations and May’s reading of a 0.2% increase. On an annual basis, core consumer prices also met projections of a 1.6% gain, but underperformed May’s 1.7% rise.

Redbook Retail Sales gained 0.8% in the week ending July 13, well above the preceding period’s 0.3% decline. A separate report showed Treasury International Capital rose to $56.4 billion in May, up from April’s upwards revised reading of $28.3 billion.

Meanwhile, U.S. Industrial Production also reinforced sentiment for a recovering economy, meeting expectations for a 0.3% surge in June, up from May’s unchanged reading compared to April. Capacity Utilization for June outperformed both projections and May’s upwards revised reading of 77.7%, rising to 77.8%, which indicated a recovering manufacturing sector.

However, yesterdays positive U.S. economic data couldnt manage to shift investors attention away from Bernankes statement as different Fed presidents stated recently diverse opinions about the future of Quantitative Easing. St. Louis Federal Reserve President James Bullard said on July 12 the U.S. central bank shouldnt taper its monetary easing program until inflation reaches its target.

Meanwhile, Philadelphia Fed President Charles Plosser said the same day exactly the opposite. He stated Fed should trim its bond purchasing in September and bring it to an end by the end of the year. Yesterday, Kansas City Fed President Esther George said the central bank should start reducing its bond purchasing program soon and bring it to an end by mid-2014. “The important thing is to start the process,” George said. She also noted that the economy would benefit from higher interest rates.

Apart from Bernanke’s testimony, market players will also be keeping an eye on the remaining U.S. data for the week to gauge the U.S. economy’s recovery pace. On Wednesday, Building Permits and Housing starts will provide data about the U.S. construction sector. The Labor Department will release Initial Jobless Claims on Thursday. The number of people who have filed for unemployment payments is expected to have dropped by 20 000 to 340 000 after last week an unexpected surge to 360 000 supported Bernanke’s statement that the U.S. labor market is still fragile.