Gold extends gains on increased demand, drop in stocks

Gold rose to a two-month high on Friday, marking a seventh day of gains in eight, and is set for the best week in five as sales from ETPs slowed and on signs of increased demand. Silver gained, while platinum and palladium fell.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1 364.00 per ounce at 8:18 GMT, up 0.23% on the day. Prices held in range between days high of $1 372.10, the highest since June 19, while days low stood at $1 360.10 per ounce. The precious metal rose more than 1.5% on Thursday, extending current weeks advance to over 3.8% and is set for posting its best weekly performance in five.

Golds advance this week, set for the best since the five days to July 12, was underpinned by increased physical demand for the metal as an alternative investment after stocks retreated. The MSCI All-Country World Index of stocks is en route to a second weekly drop on concern the Federal Reserve may decide to trim its bond purchasing program in the next months after recent upbeat U.S. jobless data.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, fell to 912.92 tons yesterday but poised to close the week higher for the first time this year.

Yang Xi, an analyst at Yongan Futures Co. in Hangzhou, China, said for Bloomberg: “The break above $1,350 prompted a short-covering rally even though expectations are still for the Fed to scale back stimulus. Physical demand for gold rises and falls with the price. Between the two, silver seems better placed as industrial demand should increase if the economy recovers.”

The metal fell to a session low Thursday afternoon after which a rebound followed to session highs after controversial U.S. economic data left investors polarized about their expectations for Feds moves regarding its monetary easing program. Consumer inflation both on monthly and annual basis met projections for an advance, while the number of people who filed for initial unemployment payments last week fell to a six-year low. The U.S. Department of Labor reported Initial Jobless Claims declined to 320 000, the lowest since October 2007. This outperformed analysts’ expectations for a rise to 335 000 and was well below the preceding week’s upward revised reading of 335 000 from 333 000 people.

However, a separate report showed that U.S. industrial production remained flat in July, defying analysts’ projections for a 0.3% advance. Meanwhile, June’s reading received a revision to an expansion by 0.2%, down from 0.3%. Capacity utilization also fell and missed projections. The indicator contracted to 77.6% in July, underperforming expectations for a rise to 77.9%.

Data also showed manufacturing activity in Philadelphia expanded at the lowest pace since four months, following an unexpected drop of the New York Empire Manufacturing Index. The August Philadelphia FED Index was projected to decline to 15.0 from July’s reading of 19.8% but defied expectations and plunged to 9.3.

Market players will be keeping a close eye on Friday’s construction data and consumer sentiment in order to gauge the possibility of Fed to begin tapering its bond purchasing program next month. Tomorrow, both Building Permits and Housing Starts are projected to have advanced in July. Meanwhile, the Preliminary University of Michigan Confidence should have risen to 85.3 from 85.1in July, according to analysts’ expectations.

Elsewhere on the precious metals market, silver advanced, while platinum and palladium fell. Silver for September delivery rose to $22.978 per ounce at 8:10 GMT, up 0.19% on the day. Prices held in range between days high of $23.158, the highest since May 14, while days low stood at $22.822 per ounce. Meanwhile, platinum October futures fell to $1 526.55 per ounce, down 0.38% on the day. The metal ranged between days high at $1 534.35, the strongest level since April 11, while days low stood at $1 523.75. Palladium for delivery in September dipped to $755.20 an ounce, marking a 0.22% daily decline. The metal held in range between days high at $765.60, a two-month high, while days low was touched at $754.90 per ounce.