Gold on 2 1/2-month high on disappointing U.S. data

Gold surged to multi-week highs on Friday after disappointing U.S. New Homes Sales spurred speculation that the Federal Reserve might delay the imminent Quantitative Easing tapering, which most of the FOMC policy makers agreed should begin at some point this year. Silver and platinum hit multi-month highs, while palladium remained fairly unchanged.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery rose to $1 393.20 per troy ounce at 14:47 GMT, up 1.62% on the day. Futures surged to $1 397.00, the strongest level since June 6, minutes after the data was released, while days low stood at $1 368.40 per ounce. The precious metal settled 1.2% higher on Thursday as U.S. initial jobless claims rose more than expected and extended its weekly advance to 1.4% following Fridays surge.

Gold surged beyond Mondays two-month high on Friday as disappointing U.S. housing data spurred speculation that the U.S. economy remains fragile and its recovery is not straight forward simple. This supported some of the FOMC policy makers’ stance that the U.S. economy requires further monitoring before Quantitative Easing is decelerated. The U.S. Commerce Department reported that 0.394 million new homes were sold in the U.S. in July, marking a 13.4% decline. This was the lowest level in nine months and the steepest drop in three years. New Homes Sales completely mismatched projections for a rise to 0.490 million units sold. At the same time, Junes reading received a downward revision to 0.455 million from the previous reading of 0.497 million homes.

This comes after St. Louis Federal Reserve Bank President James Bullard, one of Feds monetary stimulus supporters, said that the central bank should take time and assess the U.S. economy and inflation thoroughly before tapering the bond purchases. He commented for Reuters: “I don’t think we have to be in any hurry. Inflation is running low and we have got mixed data on the economy. We can afford to be very deliberate in our decision making.”.

Meanwhile, Atlanta Fed President Dennis Lockhart, also a Quantitative Easing supporter, said he will vote yes for decelerating the bond purchasing program if the economic data is supportive. He commented for Reuters: “I would be supportive in September as long as the data between now and then basically confirm the path we’re on. I am confident in a continuation of this sort of moderate growth path.”

The precious metal was also supported by prospects for a strong physical demand in its 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 Asia’s 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 April’s entry into a bear market and as the country’s middle class grows larger. Indonesia’s economy has expanded more than four times in the past 10 years with its GDP surging to $878 billion.

Elsewhere on the precious metals market, silver hit a 3-month high, while platinum posted a moderate gain and palladium remained almost unchanged. Silver for September delivery rose to $23.697 an ounce at 14:49 GMT, up 2.87% on the day. Prices ranged between days high of $23.793, the strongest level since May 12, while days low was at $22.888. Meanwhile, platinum October futures rose to $1 546.95 an ounce, up 0.44% on the day. Prices held in range between days high at $1 548.25, the highest since April 9, while days low was touched at $1 538.40. Palladium fell by 0.18% to $753.70 per ounce and ranged between $756.70 and $749.90 respectively.