Gold gains on lower dollar as Fed chairman candidate withdraws

Gold gained more than 1% on Monday as the U.S. dollar retreated to the lowest in a month following Lawrence Summers withdrawal as a candidate for next Fed chairman. Easing tension between the U.S. and Syria and expectations that policy makers will trim the $85 billion bond purchasing program after the upcoming two-day FOMC meeting limited gains.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December traded at $1 319.40 at 8:15 GMT, up 0.83% on the day. Prices ranged between days high and low of $1 334.60 and $1 318.90 per ounce respectively. The metal slipped 0.1% on Friday, a fifth consecutive daily decline, and settled the week 4.7% lower after falling 0.4% in the preceding two five-day periods.

Gold snapped five days of declines on Monday as the dollar retreated after Lawrence Summers, Treasury secretary under President Bill Clinton and former top aide to President Barack Obama, withdrew from consideration to succeed current Federal Reserve Chairman Ben Bernanke. This boosted speculation that the end of the program might be deferred as Summers was expected to tighten Fed policy more than his potential opponent Fed Vice Chairman Janet Yellen.

Dollar-denominated commodities tend to trade inversely to the greenback as a weakening of the currency boosts raw materials’ appeal as an alternative investment and makes them cheaper for foreign currency holders. The dollar index, which tracks the greenbacks performance against six major counterparts, fell by 0.55% to 81.23 at 8:15 GMT. The December contract ranged between day’s high of 81.35 and low at 81.19, the weakest level since August 28.

Gains however remained limited amid receding tension in the Middle East and broad speculations that the Federal Reserve will begin trimming its monetary easing program this week. The Federal Open Market Committee is scheduled to meet on September 17-18 and expectations point at tapering taking place. According to a Bloomberg survey conducted on September 6, the central bank will reduce its monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying unchanged at $40 billion.

Gold rose to a three-and-a-half month high in the end of August amid growing concern that a U.S.-led attack against Syria might spill the conflict over the entire Middle East region, which stoked safe haven demand for the metal. On September 14, U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov agreed to a nine-month framework for finding and destroying Assad’s chemical weapons. The Syrian president is required to declare his country’s chemical weaponry inventories by September 20. Investors now eyed the U.N. inspection report on the August 21 attack in the suburbs of Damascus, which should be released today in New York.

According to data by the U.S. Commodity Futures Trading Commission, the net-long position held by hedge funds and other large speculators fell by 16% to 84 929 futures and options combined in the week ended September 10. Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, declined to 911.12 tons on Friday, data on the web site showed.

Donald Selkin, chief market strategist at National Securities Corp. in New York, said for Bloomberg: “The market is trying to find a price for gold in an environment where the Fed begins cutting back its assistance. The temporary sparkle that we had seen because of Syria is disappearing.”

Elsewhere on the precious metals market, silver, platinum and palladium tracked golds upward momentum. Silver December futures rose by 1.01% to $21.940 an ounce at 8:08 GMT and ranged between days high and low of $22.438 and $21.805 per ounce. The metal plunged 6.9% last week, marking its weakest performance since June 21. Meanwhile, platinum for delivery in October traded at $1 459.20 an ounce, up 1.02% on the day. Futures held in range between days high and low of $1 462.80 and $1 451.80 per ounce respectively. The contract declined 2.8% last week after falling almost 3% in the preceding two five-day periods. Palladium December futures rose by 1.93% to $712.60 an ounce and ranged between a two-week high at $715.50 and low of $701.80 an ounce.