Gold hovers near three-week high on Fed stimulus outlook

Gold fluctuated near three-week high on Wednesday as investors weighed speculations that the Federal Reserve will defer paring its monetary easing program until 2014 against softening physical demand from China. Silver, platinum and palladium also fell.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December fell by 0.48% to $1 336.20 per troy ounce at 7:55 GMT. Prices ranged between days high of $1 342.20, near yesterdays three-week high, and days low of $1 332.70 per ounce. The precious metal surged 1.8% on Tuesday but trimmed its weekly advance to 1.5% on Wednesday.

Gold surged to the highest in three weeks yesterday and retained most of its gains after the U.S. Department of Labor reported that the U.S. economy added 148 000 jobs in September, sharply underperforming a median forecast of 93 economists surveyed by Bloomberg for a 180 000 surge. August’s reading received an upward revision to 193 000 payrolls from initially estimated at 169 000, signalling that the U.S. labor market lost momentum prior to the 16-day government shutdown.

The U.S. unemployment rate, based on a separate Labor Department survey of households, fell by 0.1% to 7.2% in September, beating expectations to remain flat. However, the participation rate, which measures the number of people who are either employed or are actively looking for work, remained the lowest since August 1978 at 63.2%, indicating that the fall in the unemployment rate was based on people who stopped searching for a job.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “As soon as we see data that suggests that things aren’t traveling well, it immediately puts investors’ thoughts back to quantitative easing. The market is probably fairly comfortable with the fact that there’s not going to be a tapering of QE for the foreseeable future.”

The disappointing payrolls included information for a pay period prior to the 16-day government shutdown in October, which will make policy makers wait for reliable and revised data for some time, fueling speculations that the Federal Reserve will refrain from scaling back its $85 billion per month bond purchases until 2014.

According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin decelerating its monetary stimulus in March. The yellow metal has been tracking shifting expectations for a reduction in Feds bond purchases throughout the year and has lost 20% so far in 2013.

The Labor Department’s disappointing numbers sent the U.S. dollar falling to multi-month lows, allowing dollar-denominated commodities to gain positions. The U.S. dollar index, which measures the greenback’s performance against six major peers, traded at 79.40 at 7:56 GMT, up 0.14% on the day. Prices fell to a near 9-month low of 79.19 earlier in the session, while day’s high stood at 79.44. The December contract shed almost 0.6% on Tuesday, extending its weekly decline to nearly 0.4%. Weakening of the greenback makes dollar-priced raw material cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, rose by 6.6 tons to 878.32 tons on Tuesday, rebounding from the lowest level since February 2009. This was the first increase in holdings since September 19.

Gold prices were however pressured by softening Chinese demand. The Asian nations gold imports from Hong Kong fell to 110.2 tons in August, down from 113.2 tons in the preceding month, Bloomberg data showed.

Elsewhere on the precious metals market, silver futures for December settlement traded at $22.633 per troy ounce at 7:50 GMT, down 0.70% on the day. Prices held in a days range between $22.818 and $22.595 per pound respectively. Platinum for delivery in January plunged 0.79% to $1 439.25 per ounce and shifted in a days range between $1 451.80 and $1 438.45. Palladium December futures traded at $748.40, down 0.60%. The metal rose to a session high of $754.20 per troy ounce, the highest since August 28, while days low stood at $747.50.