Gold eases off 1-month high on demand concern

Gold remained fairly steady but retreated from yesterdays one-month high as gaining prices threatened to curb demand. Meanwhile, India introduced further restrictions on gold imports. A weaker dollar supported the metal.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 330.25 an ounce at 8:33 GMT, down 0.43% on the day. Prices held in range between days high and low of $1 337.65 and $1 328.35 per ounce respectively. The precious metal gained more than 2% on Monday to hit a one-month high of $1 338.45, extending this weeks advance to over 2.8% after gaining almost 6% during the previous two. Silver and platinum also touched a one-month high on Monday.

The precious metal rose yesterday as the dollar retreated further after the National Association of Realtors reported Existing Home Sales plunged to 5.08 million in June, mismatching projections for a 0.6% rise to 5.25 million. Meanwhile, May’s reading was revised downwards to 5.14 million from 5.18 million, further worsening the situation. The metal surged 2% to hit a one-month high of $1 338.45 an ounce.

The dollar, which trades inversely to dollar-denominated commodities, hit a new one-month low on Tuesday, extending yesterdays losses. The September contract traded at 82.27 at 8:33 GMT, down 0.06% on the day. The U.S. currency gauge ranged between 82.17, a one-month low, and days high at 82.34. Futures fell for the past two days and settled last week 0.45% after plunging 1.87% the previous one following Ben Bernankes statements.

Gold was supported last week as Fed Chairman Ben Bernanke reiterated his preceding week’s statement at his two-day testimony to Congress on Wednesday and Thursday. Bernanke reinforced Fed’s view that Quantitative Easing is still expected to be tapered within the year and brought to an end by mid-2014, if the requirements are fulfilled. However, the Fed chief stated the U.S. economy currently needs the central banks accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace.

Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., said for Bloomberg: “Gold prices remain a function of the outlook for monetary policy, not just in the U.S. but around the world, and economic growth, and how those affect the equity markets and the dollar. As India increases measures to curb gold demand, it may be negative in the longer term.”

According to a Bloomberg survey that was conducted between July 18 and July 24, half of the economists polled said Fed will begin tapering its Quantitative Easing program in September, up from 44% in the preceding months poll. According to a UBS report from July 2, slow economic growth in the U.S. will boost equities more than commodities, which is bearish for gold.

Meanhwile, Goldman Sachs Group Inc. analysts wrote in a report yesterday: “After falling sharply in June on a re-pricing of Fed easing policies, gold prices have stabilized in July. Medium term, we expect that gold prices will decline further given our U.S. economists forecast for improving economic activity and a less accommodative monetary policy stance.” Goldman Sachs said gold on the New York Mercantile Exchange may fall to $1 050 an ounce by the end of 2014. Their 6- and 12-month forecasts were restated at $1 300 and $1 175 respectively.

Meanwhile, India introduced further limits over gold imports as a measure to handle a record-high current account deficit that widened following Aprils frenzy buying as prices slumped. The country increased its gold import tax from 6% to 8% in June. Yesterday, the Reserve Bank of India said on its website that at least 20% of inbound shipments of gold in any form must be made available for the purpose of export. According to the All India Gems & Jewellery Trade Federation, this may cause imports in the second quarter to decline.

Elsewhere on the precious metals market, silver, platinum and palladium are all tracking golds downward direction. Silver for September delivery traded at $20.278 an ounce at 8:30 GMT, down 1.13% on the day. Prices ranged between days high and low of $20.570 and $20.215. Platinum October futures stood at $1 436.85, marking a 0.77% decline. Futures held in range between $1 453.65 and $1 436.65. Meanwhile, palladium for September delivery traded at $735.20 an ounce at 8:32 GMT, down 2.02%. The metal shifted between high and low at $747.50 and $735.00 respectively.