Gold weekly recap, December 30 – January 3

Gold advanced on Friday, capping the largest weekly advance since October on robust Chinese physical demand. A stronger US dollar put some pressure on the yellow metal, while assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were further reduced to the lowest since January 2009, adding to bearish sentiment.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February rose by 0.90% on Friday and settled at $1 236.20 per troy ounce. Prices touched a session high at $1 239.60, the strongest level since December 18th, while days low was touched at $1 222.80 an ounce. On December 31st, prices touched $1 181.90 per troy ounce, the lowest since June 28th, when the metal bottomed at $1 180.35 per troy ounce. Gold futures settled the 5-day period 1.95% higher, the largest advance in ten weeks. However, the precious metal settled last year 28% lower, the steepest annual decline since 1981.

Fed stimulus outlook

Fed policy makers announced their decision to reduce bond purchases by $10 billion to $75 billion, on December 19th. Gold was further pressured after a recent series of unexpectedly upbeat economic data from the US supported Fed’s tapering decision and sent equities rallying.

On Thursday, a report by the US Department of Labor revealed the number of people, who filed for unemployment benefits for the week ended December 28th, declined to 339 000 from upwardly revised 341 000 the previous week. Analysts projected that the jobless claims will increase to 342 000.

On December 31st, US data revealed that consumer sentiment and home prices increased, adding to the confidence of the Fed’s tapering decision.

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, Bernanke said.

According to the median estimate of economists surveyed by Bloomberg on December 19th, the Federal Reserve may reduce the purchases in $10 billion increments over the next seven meetings, before ending the program in December 2014.

A stronger dollar limited the gold advances. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, added 0.40% to settle the week at 81.04. The March contract held in a day’s range between 81.06 and 80.64. 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 ETP, were further reduced to 794.62 tons, the lowest since January 2009, data on the website showed. The fund has lost 41% of its holdings in 2013. 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.

China demand

Strong physical demand from China supported the yellow metal on Friday.

On the Shanghai Gold Exchange, the trading volume for bullion of 99.99 percent purity rose to 10 400 kilograms on January 2nd from 7 849 kilograms on December 31st, the lowest since December 2nd.

Wallace Ng, a trader at Gensha Metals Ltd. in Shanghai, said, cited by Bloomberg: “The market has been holding well above $1,200 and that’s driven by physical demand, we saw very good physical demand from China in December, which is likely to continue as we head into the Lunar New Year.” The Lunar New Year starts on January 31st.