Gold advances ahead of US employment data, Fed tapering

Gold advanced on Friday, ahead of the release of US jobs data as investors assessed the outlook for physical demand against speculation the Fed may scale back its stimulus program further. A stronger dollar put some pressure on the yellow metal, while assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at the lowest in 5 years, adding to bearish sentiment.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February traded at $1 234.00 per troy ounce by 07:57 GMT, adding 0.37% for the day. Prices swung between day’s high and low of $1 237.10 and 1227.00 per troy ounce, respectively. On January 6th, prices touched $1 247.70 an ounce, the strongest level since December 16th. Gold futures settled last 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, as investors lost faith in it as a store of value amid a rally in U.S. equities to a record and muted inflation.

“The performance of the U.S. economy is going to drive U.S. monetary policy, so employment numbers are very closely watched,” said Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd. in Singapore, cited by Bloomberg. He also added that: “The only thing supporting the market at the moment is Chinese demand.”

Yesterday, a report by UBS AG said that volumes on the Shanghai Gold Exchange remained “decent”, even though they have eased in the past few days.

Fed stimulus outlook

The Federal Reserve Bank said on December 18th that it will reduce its monthly bond purchases in January to $75 billion from $85 billion, citing improvements in the labor market. Yesterday, Fed minutes of the December meeting revealed decreasing economic benefits from the bond-buying program, which increased bets that Fed policy makers might extend reductions in their monetary stimulus program in the near future.

Today, a report by the US Labor Department may reveal employers added more jobs in 2013 than in the past eight years. According to the median analysts forecast, US employers hired 197 000 workers last month, down from 203 000 in November, but this would bring a total of 2.27 million workers for last year, the most since 2005. On January 8th, a report by the ADP research institute showed the US private sector added 238 000 workers in December, the most since November 2012, defying analysts’ projections of a decrease to 200 000 from 215 000 workers in November. The ADP report is calculated according to the same methods the Bureau of Labor Statistics uses and is published every month, two days before the official BLS employment rate statistics.

Gold was pressured after a recent series of upbeat US economic data supported Fed’s tapering decision and sent equities rallying.

On Tuesday, the US Commerce Department reported that the US trade deficit narrowed to $34.25 billion in November, defying analysts’ projections that the trade deficit will widen to $40.00 billion. In October the US trade deficit was downwardly revised from $40.64 to $39.33 billion.

Data showed that the US imports declined 1.4% to $229.1 billion, while exports rose 0.9% to a record high $194.9 billion.

On Thursday, the US Labor department reported the initial jobless claims for the week ended January 4th decreased to 330 000 from 345 000 in the previous week. Analysts had expected the number of people who file for unemployment benefits will decrease to 335 000 people.

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 also weighed. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, traded little changed at 81.14 by 07:54 GMT. Prices shifted in a daily range between day’s high and low, 81.09 and 81.02. Yesterday, the March contract advanced to 81.33, the strongest level since November 13th. The US dollar index settled last week 0.7% higher. 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, remained at 793.12 tons on Thursday, the lowest since January 2009, data on the website showed. The fund has lost 41% of its holdings in 2013. A total of 553 tons has been withdrawn 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.