Gold futures continue the upward trend amid increased China demand

Gold futures surged for a second day as investors weighed increased demand from China against expectations for an earlier-than-expected deceleration of Feds quantitative easing program following Tuesdays upbeat housing data.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February rose to $1 247.00 per troy ounce by 9:41 GMT, gaining 0.44% on a daily basis. Prices held in range between days high of $1 248.50 and a low of $1 241.15 an ounce.

Gold shipments to China from Hong Kong rose in October as jewelers and retailers rebuilt inventories with the peak-gold demand season of the year coming closer. According to calculations by Bloomberg, based on data from the Hong Kong Census and Statistics Department, net imports, after deducting flows from China into Hong Kong rose to 129.9 metric tons in October, compared to 109.4 metric tons a month ago. The data also showed that purchases reached an all-time high of 130 tons in March and the amount for the first 10 months of 2013 surged to 955.9 tons, more than double from a year earlier.

China is the worlds second biggest importer, but is expected to overtake India as the worlds biggest bullion consumer, with demand poised to reach 1,000 tons this year, according to the World Gold Council.

Fed stimulus outlook

Meanwhile, gold was pressured by speculations that the Federal Reserve might be tapering its quantitative easing (QE) program earlier than expected. The Federal Reserve revealed last week that it might be trimming the record-high stimulus “in the coming months”, if the economic recovery starts moving in the right direction. Fed minutes showed that policy makers “generally expected that the data would prove consistent with the committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.”

The U.S. dollar index, which measures the dollar’s performance against a basket of six major peers, was mostly unchanged at 80.63 at 08:50 GMT, down 0.01% on the day. Prices fluctuated in a daily range between 80.74 and 80.56. Strengthening of the dollar makes commodities priced in it more expensive for foreign currency holders and limits their appeal as an alternative investment.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at 848.91 tons on Tuesday, the same level as on Monday and the lowest since January 2009. Outflows have totaled nearly 458 tons this year. Billionaire hedge-fund manager John Paulson who holds the biggest stake in the SPDR Gold Trust told clients on November 20 that he wouldn’t invest more money in his gold fund because it isn’t clear when inflation will accelerate. US inflation is still well below the Fed target of 2.00%.

U.S. housing data

The American benchmark was also supported after a series of data showed on Tuesday the U.S. housing market is steadily recovering despite the recent rise in mortgage rates. A report by the Commerce Department showed that permits for U.S. home construction, which lead housing starts by at least a month, rose to the highest level in nearly 5-1/2 years in October, indicating a robust recovery of the U.S. housing market. Building permits jumped to 1.034 million last month, defying expectations for a decrease to 0.940 million. Permits surged to 0.970 million in September, beating expectations for a rise to 0.930 million from August’s 0.926 million.

Year-on-year, building permits surged by 13.9% in October, while on monthly basis they advanced by 6.2% following a 5.2% gain in September.

Meanwhile, a separate gauge measuring prices of single-family home prices in the U.S. jumped in September to the highest annualized level in 7-1/2 years. The S&P/Case-Shiller Composite-20 Home Price Index, which measures prices at 20 metropolitan areas, rose by an annualized 13.3% in September, beating forecasts for a moderate gain to 13.0% from August’s 12.8% increase. Month-on-month, numbers matched forecasts for a 0.7% increase, following a 1.3% jump in August.

Later today, data by the Labor Department is expected to show that the number of people who filed for initial unemployment benefits rose to 330 000 in the week ended November 23, while durable goods orders probably fell by 1.7% in October. Business activity in Chicago likely slowed in November but remained firmly in the expansion zone, while the Thomson Reuters/University of Michigan Consumer Sentiment Index is projected to confirm the Conference Board’s improvement prediction, marking a surge to 73.1 from October’s 72.0.

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