Gold futures below the $1 200 mark on strong US economy outlook

Gold swung between gains and losses in a thin pre-holiday trade on Tuesday following a recent series of upbeat US data, which prompted the Federal Reserve to trim its monthly bond purchases and reduced the metals safe haven appeal. Assets in the SPDR Gold Trust fell to the lowest in nearly five years on Monday, adding to bearish sentiment.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February traded at $1 199.30 per troy ounce at 13:00 GMT, up 0.19% on the day. Prices shifted in a daily range between a session high and low of $1 201.40 and $1 195.70 per troy ounce. The precious metal fell by nearly 0.4% on Monday and was down 0.2% on a weekly basis on Tuesday.

Gold fell nearly 3% last week after touching a six-month low and extended its decline after unexpectedly strong economic numbers from the US gave the Federal Reserve enough confidence to begin scaling back its monthly bond purchases starting January. The metal is down nearly 30% so far this year and will post its first annual decline in 13 years after US policy makers announced their intentions to curb Feds quantitative easing program.

Fed’s balance sheet has swelled to almost $4 trillion as an attempt to revive the US labor market and put millions of unemployed Americans back to work. The central bank’s asset purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds as of January, Bernanke said.

On Friday, the Commerce Department’s final third quarter GDP growth reading defied analysts’ projections for a confirmation of the preliminary value’s 3.6% and posted at 4.1%, the largest quarterly expansion in nearly 2 years.

Meanwhile, consumer spending, which accounts for 70% of the economy, outpaced expectations as well. The final Personal Consumption Expenditures reading jumped by 2.0% in the three months through September, exceeding projections to have gained 1.4%, the same as in the previous quarter.

Also fanning negative sentiment for golds safe haven appeal, Christine Lagarde, the International Monetary Fund’s managing director, said the IMF is raising its outlook for the US economy as the reduction in Fed’s bond purchases and a budget deal in Washington eased concerns that the US economic growth might not be sustainable.

The Labor Department’s latest jobs report showed that the unemployment rate fell to a five-year low of 7.0% in November, further brightening economic prospects.

A separate report showed on Monday that consumer confidence in the worlds largest economy rose to the highest in 5 months in December, reflecting the improvement in the labor market and overall activity. The final reading of the Thomson Reuters/University of Michigan consumer sentiment index confirmed the preliminary estimate and touched a five-month high of 82.5, despite trailing expectations for a rise to 83.0.

Edward Meir, an analyst at INTL FCStone, said, cited by CNBC: “Prices will likely remain under pressure over the short-term as a combination of stronger U.S. macro statistics, higher equity markets and continued outflows of money from gold exchange-traded funds weigh on sentiment going into 2014.”

Assets in gold-backed exchange-traded products dropped by 10.3 tons to 1 775.2 tons on Monday, the lowest since November 2009. Holdings in the SPDR Gold Trust, the biggest bullion-backed ETP, fell by 8.40 tons to 805.72 tons yesterday, sliding to the weakest level since January 2009.

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.

The US dollar index, which measures the greenbacks performance against a basket of six major counterparts, traded at 80.66 at 13:29 GMT, up 0.09% on the day. Prices shifted in a days range between 80.73 and 80.58. The March contract fell by 0.2% on Monday after surging 0.7% last week, offsetting the previous two five-day periods combined decline of 0.6%. Strengthening of the greenback makes dollar-denominated commodities pricier for foreign currency holders and limits their appeal as an alternative investment.