Gold futures fluctuate near 1-week high on Fed stimulus outlook

Gold swung between gains and losses on Friday but remained near one-week high levels as investors weighed Fed Vice Chairwoman Janet Yellens comments for maintaining the current pace of monthly bond purchases against soft physical demand. Silver and palladium fell, while platinum was little changed.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December traded at $1 281.20 per troy ounce at 9:45 GMT, down 0.40% on the day. Prices shifted in a range between days high of $1 290.60, near yesterdays one-week high of $1 293.60, and session low of $1 281.00 an ounce. The precious metal rose by 0.2% yesterday but extended its weekly decline to 0.5% following Fridays losses.

Gold rose to one-week high levels after Janet Yellen, Fed Vice Chairwoman and President Barack Obama’s nominee to lead the Federal Reserve, indicated she’ll press on with Fed’s massive quantitative easing program until she sees a robust economic recovery. Yellen said she doesn’t see evidence at this point that the current policy is inflating assets bubbles, further curbing speculations for an earlier-than-expected tapering of the stimulus.

“Although there is limited evidence of reach for yield, we don’t see a broad buildup in leverage, where the development of risks that I think at this stage poses a risk to financial stability,” she said.

In her prepared comments prior to the hearing, Yellen called last month’s 7.3% unemployment rate too high, noting the economy and labor market were performing short of their potential, while inflation remained well below Fed’s 2% target and provided room for easy money supply.

Howard Wen, an analyst at HSBC Securities Inc., wrote in a note, cited by Bloomberg: “Continuing ultra-accommodative monetary policies are supportive of gold prices. A lack of follow-through buying may leave gold vulnerable to a pull-back.”

The metal also drew support after the Labor Department reported yesterday that more people than expected applied for initial unemployment benefits last week. Initial jobless claims fell to 339 000 in the week ended November 9, underperforming expectations for a drop to 330 000. Applications for the preceding week received an upward revision to 341 000 from initially estimated at 336 000, showing that the U.S. labor market was not moving straightforward in the right direction. The four-week average of claims, which irons out weekly volatility, dropped by 5 750 to 344 000.

The number of Americans who continued to receive jobless benefits was unchanged at 2.874 million in the week ended November 2, confounding expectations for a drop to 2.870 million. This number does not include the job seekers who have exhausted their traditional aid and are receiving extended payments under federal programs. Those people fell by 37 000 to 1.33 million in the week ended October 26.

Gold has fallen 23% this year as investors lost faith in the metal as a storage of value and cut their holdings in bullion-backed ETPs. The metal has been tracking shifting expectations regarding Feds tapering timetable throughout the year. Softening physical demand however put a lid on gains during the 16-day government shutdown in October and even as different Fed officials pledged to keep the central banks monetary easing program unchanged for some time.

The World Gold Council reported yesterday that China’s gold jewelry demand rose to 518 tons in the first three quarters, equal to the whole of 2012. However, global consumption remained muted. According to the report, world demand fell by 21% to 868.5 tons in the three months through September as investors continued to sell their holdings and central banks slowed purchases.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a second day at 865.71 tons yesterday, data on the web site showed. This was the lowest level since the beginning of 2009. According to government data, the trusts largest investor, Paulson & Co., held 10.23 million shares as of September 30, unchanged from the end of the previous quarter, after its holdings were cut by half in the three months through June. Assets in the ETF have declined by 36% this year.

Elsewhere on the precious metals market, silver futures for settlement in December fell by 0.66% to $20.585 per troy ounce by 9:39 GMT. The metal is down nearly 4.3% on weekly basis and is set for its worst week in two months. Platinum for delivery in January traded at $1 443.40 an ounce, down 0.05% on the day, and shifted between days high and low of $1 457.40 and $1 443.20 per ounce. Palladium December futures stood at $736.10 per troy ounce, down 0.50%, and held in range between $743.80 and $734.60.