Gold steady on QE outlook

Gold rose for the first time in four days and traded in a narrow range as market players returned to the market to seek cheap valuations after the recent drop in prices. Gains however remained limited as investors were cautious following recent mixed comments by Fed officials regarding the central banks future moves. Silver, platinum and palladium tracked golds upward momentum.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December rose by 0.54% to $1 323.40 per troy ounce at 7:56 GMT. Prices held in a tight range between days high and low of $1 329.90 and $1 322.30 per ounce. The precious metal fell by 0.1% on Tuesday but trimmed its weekly decline to 0.2% following Wednesdays rebound.

Gold surged by 4.7% last Wednesday when the Federal Reserve decided to keep its $85 billion per month bond buying program intact. The precious metal however has been declining since then as the surprise lost its initial influence and market sentiment was once again dominated by broad expectations for tapering by the end of the year.

Steven Dooley, head of research at Forex Capital Trading Pty in Melbourne, said for Bloomberg: “It was a short-term blip. The entire focus is on the fact the money-printing program is going to wind back soon, and that means gold’s going to drift lower.”

Mixed comments by Fed officials also added to the uncertainty on the market. On Monday, 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 Fed’s 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.”

Both Citigroup and Morgan Stanley expect gold prices to continue retreating as the deceleration of Fed’s monetary stimulus is seen imminent and last Wednesday’s postpone will benefit prices only in the short term. Citigroup analysts Ed Morse and Heath Jansen said in a report on Monday that the precious metal may fall to $1 250 per troy ounce by the end of the year and Morgan Stanley expects bullion to average between $1 200 and $1 350 an ounce in the coming year before trending lower.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained unchanged at 909.59 tons yesterday, data on the web site showed.

Investors will be keeping a close watch to this weeks upcoming key U.S. data to gauge the strength of the U.S. economy and tapering prospects. Reports today may show that August’s Durable Goods Orders have declined by a mere 0.1% after plunging 7.4% in July, while New Homes Sales rose to 0.420 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 2.6% 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 320 000 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.

Elsewhere on the precious metals market, silver, platinum and palladium rose with a moderate pace. Silver futures for delivery in December surged 0.64% to $21.725 per troy ounce at 7:53 GMT and held in range between days high and low of $21.898 and $21.678 an ounce. Platinum October futures traded at $1 431.45 at 7:55 GMT, up 0.89% on the day. Prices shifted between days high and low of $1 436.20 and $1 426.35 per ounce. Palladium for delivery in December rose by 0.46% to $723.30 an ounce and held in a days range between $724.00 and $719.80 an ounce.