Gold trims weekly decline on downbeat U.S. data, Yellen comments

Gold rose back to positive daily territory and pared its weekly decline after data showed manufacturing activity in the New York region fell to the lowest since January, while import prices declined more than analysts projected. Industrial production contracted by the most since April. The downbeat data backed comments by Fed Vice Chairwoman Janet Yellen at a Senate hearing yesterday for maintaining the current pace of the central banks monthly bond purchases.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December traded at $1 287.00 per troy ounce at 14:22 GMT, up 0.06% on the day. Prices plunged to a session low of $1 279.90 but rebounded following the release of the data. The precious metal added nearly 0.2% on Thursday and trimmed its weekly decline to less than 0.1% on Friday.

Gold received a boost after the Labor Department reported on Friday that prices of U.S. imports fell by 0.7% in October, underperforming expectations for a 0.4% decline. Septembers reading was revised down to show an advance of 0.1% after being initially estimated at 0.2%. Year-on-year, the import price index plunged by 2.0%, sharper than an anticipated 1.6% decline and trailing the preceding months 1.0% contraction. The drop in import costs was mainly based on a 3.6% fall in inbound oil shipments, the biggest decline in more than a year.

Meanwhile, the report also showed that export prices unexpectedly fell by 0.5% in October, a seventh monthly retreat in eight, indicating a worrisome global economic weakness. The decline suggested that major trading partners, including Europe, are struggling so much that U.S. exporters have little room to raise prices.

Another sign of economic weakness in Europe was todays inflation report. Eurostat reported earlier in the day that consumer inflation fell to the lowest in 4 years, spurring fears the bloc may be headed for a continuing period of deflation. The Euro zone’s consumer prices rose by 0.7% in October from a year earlier, meeting both projections and the preceding period’s reading. Month-on-month, the Harmonized Index of Consumer Prices (HICP) declined by 0.1% after it advanced by 0.5% in September.

Core consumer inflation advanced by 0.8%, the slowest gain in more than 2-1/2 years, down from a 1% gain in September. Month-on-month, core CPI was unchanged, trailing the preceding period’s 0.7% advance.

This comes after data showed yesterday that the Euro zone’s GDP growth matched projections and slowed to 0.1% on quarterly basis, down from 0.3% in the three months through June. Year-on-year, the single currency bloc’s economy shrank by 0.4% following a 0.5% decline in the second quarter and underperformed expectations for a 0.3% contraction.

Meanwhile, gold was also supported as manufacturing activity in the New York Region unexpectedly contracted by the most since January as new orders fell. The NY Empire State Manufacturing Index declined by 2.21 in November, defying analysts expectations for a rise to 5.00 from the preceding periods reading of 1.52. The new orders index slumped to -5.33, down from 7.75 in October. Labor market conditions also worsened with the employment index falling to 0.00 from 3.61 in the the preceding month.

A separate report by the Federal Reserve showed U.S. industrial production also surprisingly contracted last month. Output fell by 0.1%, confounding projections for a 0.2% advance after it expanded by 0.7% in September.

Capacity utilization also disappointed and fell to 78.1%, trailing both expectations and Septembers reading of 78.3%.

The U.S. dollar index, which measures the greenbacks performance against a basket of six major counterparts, traded at 80.90 at 14:24 GMT, down 0.15% on the day. The December contract shifted in a range between session high at 81.21 and low of 80.84 that was hit minutes after the release of the data. The U.S. currency gauge added 0.2% on Thursday but extended its weekly decline to nearly 0.5% on Friday.

Gold was supported throughout the day after Janet Yellen, Fed Vice Chairwoman and President Barack Obama’s nominee to lead the Federal Reserve, said at a Senate hearing on Thursday 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.