Gold little changed on stimulus outlook, increased physical demand

Gold was little changed on Friday as investors weighed the prospects of Fed tapering its $85 billion bond purchasing program within the end of the year against increased physical demand, spurred by low prices. Silver, platinum and palladium marked minor daily gains.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1 375.80 per troy ounce at 8:04 GMT, marking a 0.36% daily advance. Prices ranged between days high of 1 378.90 and low at $1 371.50 an ounce. The precious metal surged 1.2% on Thursday as U.S. initial jobless claims rose more than expected and neared Mondays two month high, trimming current weeks decline to less than 0.1%.

Gold swung between gains and losses this week as speculations that Fed might pare its monetary easing program in the upcoming months was offset by increased physical demand by the metals top consumers, spurred by low prices. Wednesdays released minutes from the Federal Open Market Committee’s July meeting showed that most of the policy makers supported Fed Chairman Ben Bernanke’s timeline to taper the $85 billion bond purchasing program by the end of the year.

“Almost all participants confirmed that they were broadly comfortable with the committee reducing the pace of its securities purchases later this year,” the minutes revealed. Only some of the members stated that it is important to remain patient and evaluate additional information on the economy before making a decision regarding trimming Quantitative Easing.

According to a Bloomberg survey of economists, 65% of the participants expected that the Federal Reserve will start trimming its $85 billion per month bond purchases after FOMC’s September meeting.

Lv Jie, an analyst at Cinda Futures Co., said for Bloomberg: “The Fed minutes have increased expectations that stimulus will be scaled back and that has certainly weighed on gold. Gold remains well-bid in Asia, which should support prices.”

The precious metal was supported by prospects for a strong physical demand in the top two consumers. According to World Gold Council data, global bar and coin sales rose by 78% to 507.6 tons in the second quarter compared to a year earlier as demand in India and China, the world’s top two consumers, more than doubled. Jewelry demand increased by 47% to 575.5 tons.

Sales of coins and bars will reach as much as 1 000 metric tons in the two countries by the end of the year as low prices and economic recovery spurred demand. China’s demand totaled 776.1 tons last year, while India consumed 864.2 tons, council data showed.

Meanwhile, gold jewelry demand in Indonesia, Southeast Asias biggest buyer, may surge to a four-year high. According to Iskandar Husin, secretary-general of the Indonesian Goldsmiths and Jewelers Association, consumption of rings, bracelets and necklaces is expected to climb to 40 tons this year as prices fell after Aprils entry into a bear market and as the countrys middle class grows larger. Indonesias economy has expanded more than four times in the past 10 years with its GDP surging to $878 billion.

“Gold jewelry is all about lifestyle and saving,” Iskandar Husin said for Bloomberg. “It’s a market driven by the increase in GDP and modern Indonesian women, who are following the trends in fashion and design.”

However, gold traders turned most bearish in nine weeks after most of the Federal Reserve policy makers backed Chairman Ben Bernankes timeline to taper Quantitative Easing within the end of the year. According to a Bloomberg survey of analysts, twelve out of 21 participants wagered that prices will fall next week, while two remained neutral and eight expected a rally.

Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen, said for Bloomberg: “We may have seen the worst in terms of investor liquidation and the gold market is much better balanced now, but we are probably not out of the woods yet. We continue to have the Fed-tapering talk. The negative view is still driven by this.”

Holdings in the SPDR Gold Trust, the biggest bullion-backed ETP, fell to 913.52 tons on Wednesday and remained unchanged on Thursday, bringing this year’s decline to 32%. Assets rose on a weekly basis for the first time since December last week.

Market players will also be keeping a close eye on Friday’s New Home Sales in the U.S. to further gauge the economy’s recovery pace. The indicator is expected to have declined to 0.490 million units sold in July, down from 0.497 million in the preceding month.

Elsewhere on the precious metals market, silver, platinum and palladium posted minor daily gains. Silver for delivery in September traded at $23.075 per troy ounce at 7:58 GMT, up 0.17% on the day. Prices ranged between days high and low of $23.237 and $22.888 respectively. Platinum October futures rose by 0.04% to $1 540.75 per ounce. The metal surged to a 4-1/2 month high of $1 546.40 an ounce, the highest since April 9, and is set for a seventh straight weekly advance amid reduced output in South Africa. Meanwhile, palladium for September delivery rose to $755.10 an ounce, up 0.01% on the day. Futures ranged between days high and low of $756.70 and $652.30 per ounce respectively.