Gold hovers around five-week high ahead of FOMC meeting

Gold fell in the early European session after trading mostly higher but remained near yesterdays five-week high on broad market views the Federal Reserve will refrain from scaling back its monthly bond purchases at FOMCs upcoming two-day meeting. Soft physical demand weighed on prices. Silver, platinum and palladium fell.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December traded at $1 344.20 per troy ounce at 8:45 GMT, down 0.59% on the day. The precious metal rose on Monday but extended its weekly decline to 0.5% on Tuesday.

Gold for delivery in December rose by 6.1% in the preceding two weeks and remained near five-week high levels after political wrangling in Washington closed the federal government for 16 days and put the U.S. at risk of an unprecedented default. A string of downbeat data further fanned negative sentiment over the U.S. economys recovery and shifted market analysts expectations for tapering to next year after almost everyone expected the Fed to trim its stimulus in September.

Gold rose to a five-week high of $1 360.20 per troy ounce on Monday after the National Association of Realtors reported that the number of contracts to buy previously owned homes fell by 5.6%, the most in almost 3-1/2 years, and confounded analysts’ projection for a 0.1% increase after falling by 1.6% in August.

A separate report by the Federal Reserve showed that overall the industrial production’s expansion in September exceeded analysts’s projections after utilities rebounded 4.4% last month following five consecutive monthly declines. Mining output gained 0.2% but trailed August’s 0.6% advance.

However, manufacturing output managed to barely rise last month after the production of computer and electronic goods fell, indicating that business spending in the end of the third quarter eased. Output at factories inched up by 0.1% and August’s reading received a downward revision to 0.5%. Analysts surveyed by Bloomberg expected a 0.3% advance in September.

The downbeat data added to last week’s disappointing employment statistics. Data 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.

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 almost 20% so far in 2013.

However, soft physical demand continued to pressure prices down. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a second day at 872.02 tons on Monday. data on the web site showed.

Recent data by the International Monetary Fund showed that Russia’s gold reserves fell by 0.37 tons to 1 015.1 tons in September, the first reduction in holdings in a year, while Mexico’s stockpiles declined for a 17th straight month.

Songwut Apirakkhit, managing director of Globlex Holding Management in Bangkok, said for CNBC: “In line with market expectations, we think the Fed will continue with quantitative easing. However, we think the expectations have already been priced in and gold is due for a correction.”

Elsewhere on the precious metals market, silver, platinum and palladium tracked golds downward momentum. Silver futures for settlement in December traded at $22.337 per troy ounce at 8:39 GMT, down 0.89%, and held in range between days high and low of $22.615 and $22.305 per ounce respectively. Platinum for delivery in January slipped 0.57% to $1 464.50 an ounce. The metal rose to session high of $1 473.85, near yesterdays six-week high. Palladium for delivery in December stood at $744.30 per ounce at 8:43 GMT, down 0.82% on the day.