Gold eases from 1-month high as higher prices spur sales

Gold touched a new 1-month high on Wednesday after which a decline followed as some market players decided to take advantage of the recent rally and sell. Silver and platinum gained, while palladium declined.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 342.55 an ounce at 7:59 GMT, up 0.59% on the day. Prices ranged between a recently hit 1-month high at $1 347.85 and days low of $1 338.15 an ounce. The precious metal gained throughout the last four days, extending this weeks advance to over 3.6% after surging almost 6% during the previous two 5-day periods.

Gold has risen over 8% in July as Federal Reserve Chairman Ben Bernanke reinforced Fed’s view at his testimony to Congress last week 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 bank’s accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace.

This caused the dollar to retreat from a three-year high it hit prior to Bernankes comments, thus supporting dollar-denominated raw materials. The greenback tends to trade inversely to commodities as weakening of the currency makes them cheaper for foreign currency holders and boosts their appeal as an alternative investment. The dollar index, which measures the greenbacks performance against a basket of six major counterparts, extended a three-day declining cycle on Wednesday, trading near Tuesdays one-month low. The September contract stood at 82.07 at 7:47 GMT, down 0.01% on the day. The U.S. currency gauge has so far declined 0.8% for the week after plunging 2.3% during the preceding two.

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 month’s 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.

Mark To, head of research at Wing Fung Financial Group, said for Bloomberg: “After the recent rally, bullion may consolidate in the near term. Gold has been pressured by the expectation of a slowdown in the pace of asset purchases by the Fed. Any sign of weakness in the U.S. economy will help gold.”

Gold futures fell to as much as $1 180 in the end of June, but rebounded and pared some previous losses. However, the metal has lost 20% so far this year and is poised to mark its first annual drop after advancing for 12 straight years. Jan Hatzius, Goldman Sachs Group Inc. chief economist, wrote in a client note that the Federal Reserve is expected to announce the tapering of its $85 billion bond purchasing program at its September 17-18 meeting.

China data

Meanwhile, another batch of negative China data spurred concern over commodities demand in the worlds second biggest economy. Golds demand prospects were hurt as the country’s vast manufacturing sector decelerated to an 11-month low in July according to the flash HSBC/Markit PMI. The index fell to 47.7, compared to June’s final reading of 48.2 and if confirmed in the final report on August 1, it will be the lowest in 11 months. Readings below 50 indicate contraction in the respective sector.

Meanwhile, a sub-index that measures employment fell for a fourth consecutive month below 50 to 47.3 in July, lower than June’s 47.7 reading and the the weakest since March 2009.

Elsewhere on the precious metals market, silver and platinum marked minor daily gains, while palladium declined. Silver for September delivery traded at $20.348 an ounce at 7:56 GMT, up 0.46% on the day. Prices ranged between days high and low of $20.517 and $20.175 respectively. Platinum October futures stood at $1 445.25 per ounce, posting a 0.15% advance. Prices fluctuated between $1 450.30 and $1 441.90. Meanwhile, palladium for September delivery traded at $737.60 an ounce, down 0.25% on the day. Prices held in range between high and low of $743.70 and $735.80 per ounce respectively.