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Gold below $1 300 on Fed comments, U.S. data

gold_0Gold marked a second daily decline and fell below the $1 300 mark as Fed Dallas President Richard Fisher said yesterday the central bank is closer to tapering Quantitative Easing. Meanwhile, upbeat services sector data offset previous gains, which came after the U.S. Department of Labor reported worse than expected payrolls statistics last week.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1 289.95 per troy ounce at 8:27 GMT, down 0.96% on the day. Prices held in range between days high and low of $1 306.25 and $1 287.15 an ounce respectively. The precious metal settled 0.66% lower on Monday, extending its weekly decline to over 1.5% after plunging 1.6% the previous week.

Gold has fallen 23% so far this year on speculation the Federal Reserve will trim its bond purchasing program in the second half of the year and bring it to an end by mid-2014. FOMC’s statement last week provided overall no new language since its latest meetings on the conditions for maintaining and decelerating the monetary stimulus.

“The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee said. Bernanke and his colleagues said that further improvements of the labor market are required.

However, gold was pressured yesterday as Federal Reserve Bank of Dallas President Richard Fisher, one of Quantitative Easings critics, announced that the central bank is getting closer to tapering the monetary easing program.

Fisher said in speech in Portland, Oregon: “Financial markets may have become too accustomed to what some have depicted as a Fed ‘put. Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets” and can lead to “serious misallocation of capital.”

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. According to a Bloomberg survey of analysts last month, fifty percent of the 54 economists expect Fed to taper its Quantitative Easing program in September.

Meanwhile, a report by the Institute for Supply Management erased previous gains that followed last weeks jobless data. The Department of Labor reported on Friday that the U.S. economy created a lot less jobs than projected. Non-Farm Payrolls climbed by 162 000, underperforming analysts’ expectations for 185 000. This was also below June’s reading of 188 000 jobs created, which was revised down by 7 000 from 195 000. This dampened speculation over an earlier-than-expected deceleration of Feds monetary stimulus, sighting a still frail labor marked, causing gold to surge back to positive territory.

However, the ISM reported on Monday that the U.S. services sector rose with a lot faster pace in July than in June, hitting a five-month high. The ISM Non-Manufacturing Composite index surged to 56.0, well above analysts’ expectations for a jump to 53.1 from June’s 52.2 figure. Sixteen out of eighteen sectors that are tracked for the preparation of the index have marked an expansion in July, compared to fourteen in June. This boosted the U.S. economys recovery prospects, spurring speculation Quantitative Easing may after all be tapered in September, as many analysts project. As a result, assets in the SPDR Gold Trust, the biggest bullion-backed ETP, fell by 0.2% to 917.14 tons yesterday, a new low since February 2009.

Market players are looking ahead at this weeks U.S. data to further gauge the recovery pace of the worlds top economy. On Tuesday, Junes Trade Balance deficit is expected to have narrowed to $43.500 billion from Mays $45.027 billion. On Wednesday, U.S. Consumer Credit indicator will likely show a decline to $15 billion in June, down from Mays $19.615 billion. Thursdays Initial Jobless Claims are expected to have risen by 9 000 to 335 000 in the week ending August 3.

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