Gold hovers near 1-month high on Fed stimulus outlook

Gold traded lower on Monday but remained near Fridays one-month high amid broad expectations that FOMCs two-day meeting which begins tomorrow will conclude with no change in Feds policy following the recent downbeat employment data. Silver and palladium posted moderate retreats, while platinum was little changed.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December traded at $1 351.10 per troy ounce at 9:21 GMT, down 0.10% on the day. Prices rose to a session high of $1 354.00, near Fridays one-month high of $1 355.60, while days low stood at $1 346.30 per ounce. The metal settled 2.6% higher last week after adding 3.5% in the previous five-day period.

Gold fluctuated on Monday ahead of the release of key U.S. economic data this week that will provide information about the timeline of Fed’s stimulus program. The Federal Open Market Committee will hold a two-day meeting starting tomorrow where policy makers will assess the damage the 16-day government shutdown caused to the fourth quarter economic growth. Broad expectations call for a delay in tapering until some point in 2014 after employment data last week showed that job growth slowed in September and applications for initial unemployment benefits fell less than expected.

Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., said for Bloomberg: “The weakness seen in recent U.S. economic data has driven a rally in gold as it increases expectations that the Fed won’t cut back stimulus soon. Sentiment towards gold has been poor this year and we’ll have to wait and see if the rally can be sustained as outflows continue.”

Data last week showed 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.

On Thursday, the Labor Department reported that the number of people who filed for initial unemployment benefits in the week ended October 19 fell by 12 000, underperforming the median estimate of 48 economists surveyed by Bloomberg for a fall to 340 000. The preceding period’s reading received and upward revision to 362 000 from initially estimated at 358 000. The four-week average, which irons out weekly volatility, rose to 348 250 from 337 500 in the previous week.

The U.S. dollar fell to multi-month lows last week, allowing dollar-priced commodities to regain positions. The U.S. dollar index, which measures the greenback’s performance against a basket of six major trading partners, traded at 79.27 at 9:22 GMT, up 0.01% on the day. Prices plunged to 79.07 on Friday, the lowest since September 2012. Weakening of the dollar makes dollar-denominated raw materials cheaper for foreign currency holders and boosts their appeal as an alternative investment.

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 Fed’s bond purchases throughout the year and has lost 20% so far in 2013.

However, golds gains were limited by soft physical demand. Data by the International Monetary Fund showed that Russias gold reserves fell by 0.37 tons to 1 015.1 tons in September, the first reduction in holdings in a year, while Mexicos stockpiles declined for a 17th straight month.

Assets in the SPDR Gold Trust, the biggest bullion backed ETF, fell to 872.02 tons on Friday, data on the website showed.

Elsewhere on the precious metals market, silver futures for settlement in December slipped 0.11% to $22.615 per ounce by 9:17 GMT and held in days range between $22.638 and $22.377. Platinum for delivery in January traded at $1 457.00 per troy ounce at 9:18 GMT, up 0.10% on the day. Prices rose to session high of $1 457.25, near Fridays one-month high, while days low stood at $1 450.15. Palladium futures for settlement in December fell by 0.51% to $744.10 per ounce and shifted in a days range between $744.60 and $741.10 an ounce.