Gold fell amid speculations that better-than-expected US data from yesterday and keenly anticipated economic indicators due later today may prompt the Federal Reserve to taper stimulus. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained for a second day at the lowest since January 2009, adding to bearish sentiment. A stronger dollar put more pressure on the metal.
On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February fell by 0.37% on daily basis to $1 227.40 per troy ounce by 11:51 GMT. Gold prices swung between daily highs and lows of $1 233.40 and $1 224.80 per troy ounce, respectively. Gold plunged 5.3 percent in November, the most since June when prices touched a 34-month low of $1 180.50 per troy ounce, and the biggest drop for a November since 1978.
The precious metal has fallen 27% so far this year and is heading for the first annual drop since 2000 as investors lost faith in the metal as a store of value amid a rally in U.S. equities to a record and muted inflation.
James Steel, an analyst at HSBC Securities (USA) Inc. in New York, said, cited by Bloomberg: “Gold has been dragged lower, for the bulk of this year, on the uncertainty over a possible Fed tapering, forward guidance on QE ’tapering’ would remove this uncertainty and provide some relief for the bullion markets.”
Fed stimulus outlook
Yesterday, much-better-than-expected US economic data reinforced speculations that the Fed might be tempted to cut its $85 billion bond purchasing program earlier than expected.
The US Commerce Department reported the nation’s preliminary Gross Domestic Product grew at a 3.6% annualized rate in the third quarter, up from the initial estimate of 2.8% and the strongest since Q1 of 2012, beating analysts’ projections for a 3.1% expansion. According to the report, US growth was mainly driven by the largest increase in inventories since early 1998. Inventories increased at a $116.5 billion annualized pace in Q3, compared to $86 billion rate the preceding quarter.
A separate report provided by the Labor Department showed that the number of people who filed for initial unemployment benefits sharply dropped in the week ended November 30. Initial Jobless Claims declined to 298 000 last week, compared to an upward revised 321 000 claims in the preceding week, confounding analysts’ expectations for a jump to 325 000.
Yesterday’s jobless claims, coupled with better-than-expected employment data on Wednesday, fueled speculations we might get upbeat readings today when the Labor Department releasee November’s keenly awaited non-farm payrolls and unemployment rate. Automatic Data Processing Inc. reported on Wednesday that U.S. private employers added 215 000 jobs last month, the biggest increase in a year, confounding analysts projections for a decline to 170 000. October’s reading received an upward revision to 184 000 from initially estimated at 130 000, suggesting the US economy fared better than economists thought in October.
Today’s reports may show that US employers added 180 000 workers to non-farm payrolls in November, while the unemployment rate slid back to a five-year low of 7.2%.
The FOMC’s October meeting minutes pointed that Federal Reserve officials may reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves. Central bankers are set to reconvene on December 17-18th.
Last month, a survey by Bloomberg revealed that the Fed will probably trim its asset purchases to $70 billion from $85 billion at its March 18-19th meeting.
Fed Reserve Bank of Atlanta President Dennis Lockhart said yesterday, cited by Bloomberg that any decision to taper should be accompanied by a limit on the size of the program or a timetable for ending it.
A stronger dollar put more pressure on gold. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, was up by 0.04% on Friday to reach 80.31 at 11:55 GMT. The December contract held in a day’s range between 80.41 and low of 80.29. The index settled last week mostly unchanged after falling by 0.75% in the preceding two weeks. 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 838.71 tons on Thursday, the lowest since January 2009. Outflows have totaled nearly 468 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%.