Gold fluctuates near two-week low on Fed stimulus outlook, strong dollar

Gold swung between gains and losses on Monday but remained near Fridays two-week low on speculations the recent upbeat U.S. economic data might allow the Federal Reserve to scale back its bond purchases earlier than previously projected. The U.S. dollar remained steady at 1-1/2-month high levels. Market players eyed the upcoming key data from Europe and the U.S. to gauge the strength of the major currencies and Feds tapering timetable. Silver and platinum fell, while palladium marked an advance.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December rose by 0.10% to $1 314.50 per troy ounce by 9:06 GMT. Prices held in range between days low of $1 311.00, near Fridays two-week low of $1 305.80 per ounce, while days high stood at $1 315.80. The precious metal fell by 0.5% on Friday and settled the week 2.6% lower, the biggest weekly loss in seven.

Market sentiment remained damped after the U.S. dollar hovered over 1-1/2-month highs, supported by a recent string of upbeat U.S. data. The greenback rose for a sixth straight session on Friday after the Institute for Supply Management reported that manufacturing activity in the world’s biggest economy rose at the fastest pace in two and a half years. The ISM Manufacturing index surged to 56.4, the highest since April 2011, defying analysts’ projection for a drop to 55.0 from September’s reading of 56.2.

The strong manufacturing expansion in the U.S. was based on robust motor vehicle sales and the overall recovery in the housing market, despite recent downbeat data. The upbeat numbers suggested that the 16-day government shutdown in October had little or almost no effect on factory activity.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major peers, traded at 80.70 at 9:07 GMT, down 0.13% on the day. The December contract rose to a session high of 81.01, the strongest reading since September 17, while day’s low stood at 80.68. The U.S. currency gauge rose for a six straight day on Friday and settled the week 1.9% higher. Strengthening of the greenback makes dollar-denominated commodities more expensive for holders of other currencies and limits their appeal as an alternative investment.

Gold has fallen more than 21% so far this year after it tumbled in a bear market in April as investors lost faith in the yellow metal as safe haven. The metal largely tracked shifting expectations of when the Federal Reserve will taper its monetary stimulus. The central bank surprisingly refrained from trimming its bond purchases in September and repeated the same action in October, basing its decision on the 16-day government shutdown, which likely hurt economic growth in the last quarter. However, recent upbeat data put tapering back on the table for January or even December, according to some analysts, further limiting demand for the precious metal.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, fell to 866.32 tons on Friday, the lowest since February 2009, after remaining unchanged for five days at 872.02 tons, data on the web site showed.

Investors are awaiting a string of key U.S. economic data this week to provide further signals of when the Federal Reserve may begin tapering its stimulus. Manufacturing and services PMI data from the Euro zone, coupled with interest rate decisions and announcements by central bankers from the EU will determine the euro and British pound’s strength, affecting the U.S. dollar.

Meanwhile in the U.S., factory orders in August and September, due to be released on Monday, are expected to have marked an improvement compared to the preceding months. On Tuesday, the Institute for Supply Management will likely report the U.S. service sector expanded at a slightly slower pace in October from a month earlier. On Thursday, the preliminary reading of the U.S. Q3 GDP growth may show a smaller expansion compared to the preceding three months. Personal Consumption Expenditures probably fell in the third quarter, while core consumer spending is expected to have advanced. On Friday, October’s non-farm payrolls are projected to have further eased, while the unemployment rate likely inched up to 7.3%, according to analysts’ expectations. Personal income and personal spending are projected to have risen at a slower pace from a month ago. The preliminary reading of the Thomson Reuters/University of Michigan Consumer Sentiment Index may show a rebound to 74.5 in November, up from 73.2 in October.

Elsewhere on the precious metals market, silver futures for settlement in December fell for a third day by 0.59% to $21.708 per troy ounce by 9:03 GMT. Prices dropped earlier to a session low of $21.615, the weakest level since October 17. Platinum for delivery in January slid 0.16% to $1 449.55 per troy ounce and held in a days range between $1 457.15 and $1 449.15. Palladium December futures traded at $739.70 per troy ounce, up 0.20% on the day, and varied between days high and low of $743.70 and $739.20 an ounce.