Gold extends losses on increased bets for Fed stimulus cuts

Gold declined for a third day on Thursday amid reinforced speculations Fed may continue to pare back its monthly monetary stimulus throughout 2014, following a recent series of upbeat US reports. A stronger dollar also weighed, 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 declined 0.14% to trade at $1 236.60 per troy ounce by 08:21 GMT. Prices touched a session high at $1 243.40, while day’s low was touched at $1 236.50 an ounce. Yesterday the contract lost 0.2%, after it declined by 0.85% in the previous day.

Gold futures settled last week 0.95% higher, after adding 1.95% in the previous 5-day period. However, the precious metal settled last year 28% lower, the steepest annual decline since 1981 as investors lost faith in the metal as a store of value.

Fed stimulus outlook

Gold was pressured after a recent series of upbeat US economic data supported Fed’s tapering decision and increased bets for further reduction at FOMC’s next policy meeting.

Yesterday, the Bureau of Labor Statistics, part of the US Department of Labor, released a report that showed nation’s PPI surged by an annualized 1.2% in December, after the index increased by 0.7% in November. Analysts had expected the PPI will rise to 1.1%. Month-over-month, the PPI increased by 0.4% in December, the largest increase since June and in line with analysts’ forecasts and after the index declined by 0.1% in the preceding month.

Data showed that the core PPI also rose by an annualized 1.4%, exceeding previous month 1.3% increase and higher than analysts’ estimates of a 1.3% gain. Month-over-month, the index rose by 0.3% in December, while analysts had expected the index will rise by 0.1%. In November the core PPI rose by 0.1%.

A separate report showed a gauge that tracks the manufacturing activity in the state of New York, increased to 12.1 in January, the strongest level since May 2012, which was more than three times larger-than-projected. According to the median analyst’ forecast the index should have increased to 3.5, after an upward revision to 2.22 in the previous month.

Also supporting the strong US economic outlook, Feds Beige Book business survey revealed that Fed officials saw the US economy continuing to grow at a “moderate” pace.

The reports boosted the dollars demand and pressured gold prices, as they favored the view that the Federal Reserve Bank may continue tapering during the year. Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion from $85 billion, underscoring improving labor market conditions.

The central bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th. The Federal Open Market Committee is scheduled to meet next on January 28-29.

In addition, Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, yesterday called for continued reduction of the Fed’s bond-buying program. Fisher said that he would strive to eliminate the program entirely “at the earliest practicable date”, while his colleague said he would prefer the stimulus program to be ended before late 2014.

A stronger US dollar further weighed. The US dollar index, which measures the greenback’s performance against a basket of six major peers, advanced 0.06% on Thursday to trade at 81.16 by 08:16 GMT. Prices shifted in a daily range between day’s high and low, 81.19 and 81.04. Yesterday the contract gained 0.5%. 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 789.56 on Wednesday, the weakest level 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.