Gold swings on QE outlook, increased Chinese physical demand

Gold swung between gains and losses on Tuesday as market players weighed ambivalent expectations about the timing of Fed parings its monetary stimulus against increased physical demand from China before the nations Golden Week holiday. Silver, platinum and palladium also fell.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December fell by 0.56% to $1 319.60 per troy ounce. The precious metal held in a narrow range between days low of $1 318.80 and high at $1 329.40 per ounce. The precious metal extended its weekly decline to 0.5% on Tuesday after settling 2.9% lower on Friday and remaining flat for the week.

Gold remained under pressure as recent upbeat U.S. economic data was weighed against mixed comments by Fed officials regarding Feds timeline to taper its quantitative easing program. Yesterday, Federal Reserve Bank of New York President and vice chairman of the FOMC William Dudley said that policy makers must forcefully push against headwinds.

“The economy still needs the support of a very accommodative monetary policy,” Dudley said. “Improving economic fundamentals versus fiscal drag and somewhat tighter financial conditions are pulling the economy in opposite directions, roughly canceling each other.”

Meanwhile, Atlanta Fed President Dennis Lockhart said that monetary policy should focus on creating a more dynamic economy. He also backed Feds bond purchasing program.

This comes after St. Louis Fed President James Bullard said on Friday that the Federal Reserve could still trim its monetary easing program in October if economic data lay support. “October is a live meeting,” he said for Bloomberg. “I’m not saying it’s going to happen, but the possibility exists.”

Recent upbeat numbers from the U.S. provided support for tapering, with expectations for more positive readings this week. Data by the Commerce Department showed that the U.S. current account deficit in the second quarter fell to $98.89 billion, the lowest since 2009. A separate report by the National Association of Realtors said that existing home sales in the U.S. rose to a 6 1/2-year high of 5.48 million in August, indicating persistent recovery in the housing market. The reading was the strongest since February 2007 and defied market analysts’ projections for a drop to 5.25 million from July’s 5.39 million homes sold.

Data today may show that the U.S. consumer confidence has fallen in September to 80.0 from 81.5 in August. Meanwhile, the S&P/Case-Shiller Composite-20 Home Price Index has likely gained to 12.40% in July from 12.07% in the preceding month, sighting consistent recovery of the housing market. On Wednesday, Augusts Durable Goods Orders are projected to have declined by a mere 0.1% after plunging 7.4% in July, while New Homes Sales rose to 0.425 million from 0.394 million in the previous period. On Thursday, the final reading of the Q2 Gross Domestic Product is expected to show a 2.7% expansion from the previous year after the preliminary revised reading showed a 2.5% growth. Final consumer spending (Personal Consumption Expenditures – PCE) likely grew by 1.8% in the second quarter, while the core value surged 0.8%. Also on Thursday, weekly initial jobless claims data is expected to show an increase to 330 000 from 309 000 claims filed in the preceding week, while pending homes sales may have decreased by 1% in August after falling 1.3% in July.

Gold losses however remained limited as lower prices boosted demand prospects and Chinas upcoming Golden Week beginning on October 1 is expected to lure more buyers. Volumes for spot gold on the Shanghai Gold Exchange rose to a one-week high yesterday, while sales of the U.S. Mints American Eagle gold coins have already reached 12 000 ounces in September, compared to a total of 11 500 ounces sold in August.

Assets in the SPDR Gold Trust however dropped to 909.59 tons yesterday after decreasing to 910.19 tons on Friday, data on the web site showed.

Wang Xiaoli, chief investment strategist at CITICS Futures Co., said for Bloomberg: “While most jewelers have already stocked up in anticipation of higher demand during the Golden Week, physical purchases are steady when prices fall. Gold’s main direction will continue to come from cues on what the Fed may do with stimulus.”

Elsewhere on the precious metals market, silver, platinum and palladium tracked golds downward momentum. Silver December futures fell by 1.00% to $21.638 per ounce at 7:54 GMT and held in range between days high and low of $22.033 and $21.630 per ounce. Platinum for delivery in October slipped 0.23% to $1 422.55 an ounce and varied in a days range of $1 431.15 and $1 421.50 per ounce. Palladium December futures declined by 0.63% to $713.40 and ranged between days high and low of $719.50 and $713.20 per ounce respectively.