Gold erases gains on upbeat U.S. data, QE outlook in focus

Gold erased earlier gains throughout the day and slipped back to negative territory following upbeat U.S. data that outperformed analysts expectations. The U.S. economy grew much faster in the second quarter than last years downward revised pace, which shot the dollar up and pressured dollar-denominated commodities.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1 313.05 per troy ounce at 14:02 GMT, down 0.89% on the day. The precious metal rose to as much as $1 339.15 an ounce in the early Asian session, but fell to $1 311.55 an ounce minutes after the upbeat economic data was released, slipping to the red side of the scale and trimming the biggest monthly advance since January 2012.

Gold tumbled on Wednesday after the Bureau of Economic Analysis reported that the U.S. economy grew much more than projected, causing speculation to arise that Fed might begin tapering its monetary easing program earlier than expected. The countrys Advance Gross Domestic Product rose to 1.7% in the second quarter, outperforming analysts expectations for a decrease to 1.0% from the preceding periods downward revised reading of 1.1%.

Data also showed that Consumer Spending grew more than anticipated too. Preliminary Personal Consumption Expenditures rose by 1.8% in the second quarter, surpassing expectations for a drop to 1.6% from the previous periods 2.6% increase. Consumer spending accounts for as much as 70% of U.S. economic growth. Core PCE gained 0.8% but was below forecasts for a 1.1% increase and Q1s 1.3% surge.

Employment expenditures in the worlds biggest economy advanced with a moderate pace, signalling that inflation remains stable and low, despite the $85 billion per month bond purchasing program. The Employment Cost Index surpassed expectations for a 0.4% gain and stood at 0.5%, aligning to first quarters upward revised reading. The low increase however is a sign that the labor market remains fragile.

Meanwhile, Automatic Data Processing Inc. reported earlier today that the U.S. economy created more jobs than projected by analysts. Julys ADP Employment Change indicator rose to 200 000, compared to forecasts for a decline to 180 000 from Junes upward revised reading of 198 000 jobs.

The ADP data however is considered as less reliable and investors are eyeing Thursdays Initial Jobless Claims and Fridays Unemployment Rate and the Non-Farm Payrolls figures. On Thursday, the Labor Department will likely report that 2 000 more people have filed for initial unemployment payments in the week ending July 27, up from the preceding periods 343 000. On Friday, the government agency is expected to report that the Unemployment Rate has fallen to 7.5% in July, down from Junes 7.6%. Meanwhile, Non-Farm Payrolls probably declined by 10 000 to 185 000.

The upbeat U.S. data supported the dollar, which extended positions after trading lower for most of the day. The dollar index, which measures the greenbacks performance against six major peers, rose to 82.21 at 14:04 GMT, up 0.34% on the day. Days high was hit minutes after the indicators were published, while days low at 81.76 was touched and overall maintained earlier during European trading. The September contract surged 0.16% on Tuesday and has so far advanced 0.5% on the week after falling more than 1.6% in the preceding two.

Market players remain cautious ahead of Fed’s meeting statement that will be released at 18:00 GMT. Gold’s price has largely been tracking shifting expectations of an earlier-than-expected deceleration of Fed’s monetary easing program. The metal is used mainly as a hedge against inflation, which accelerates when a central bank eases money supply. An exit from a program such as Quantitative Easing would deliver a heavy blow to gold’s price as its demand will crumble.

Steven Dooley, head of research at Forex Capital Trading Pty in Melbourne, said for Bloomberg: “Gold can move by $50 an ounce either way tonight, depending on what the Fed is going to say. What we are looking for is some kind of guidance on the Fed’s tapering. Other numbers like GDP or job data pale in comparison to the Fed.”

Investors will also be keeping an eye on other upcoming U.S. data to gauge the strength of the U.S. dollar. Apart from the employment data throughout the week, Personal Income, Personal Spending, Average Hourly Earnings and Factory Orders will be released on Friday.

Elsewhere on the precious metals market, silver, platinum and palladium also erased earlier gains and traded lower. Silver for September delivery fell to $19.563 an ounce at 14:00 GMT, down 0.59% on the day. Prices held in a wide range between days high and low of $19.968 and $19.517 an ounce respectively. Meanwhile, Platinum October futures plunged to $1 431.60 per ounce, marking a 0.41% decline. The metal varied between $1 449.25 and $1 429.30. Palladium for September delivery lost 0.34% on the day and stood at $726.20 per ounce at 14:01 GMT. Prices ranged between days high and low of $738.80 and $726.20 an ounce respectively.