Gold trades little changed on Fed taper outlook, Chinese demand

Gold traded little changed on Friday as investors weighed the prospects for further Fed stimulus cuts against increased physical demand. A stronger dollar fanned some negative sentiment, 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 rose by 0.02% to trade at $1 240.50 per troy ounce by 08:25 GMT. Prices touched a session high at $1 244.20, while day’s low was touched at $1 239.50 an ounce.

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.

“Physical demand in China has been good but it’s not enough to offset the negative sentiment toward gold this year,” said Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., cited by Bloomberg.

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, a report by the Federal Reserve Bank of Philadelphia revealed its index of manufacturing activity soared to 9.4 in January, exceeding analysts forecast of an increase to 8.8 and after the index was revised downwards from 7.0 to 6.4 in the previous month.

A separate report by the US Department of Labor, showed the number of initial jobless claims fell to 326 000 in the week ended January 11th, the weakest level since November. Analysts had expected the people who file for unemployment benefits will be 328 000, after they have been revised downwards to 328 000 from 330 000 in the previous week.

In addition, 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.

The reports boosted the dollar’s 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.

Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, early this week called for continued reduction of the Fed’s bond-buying program.

A stronger US dollar further weighed. The US dollar index, which measures the greenback’s performance against a basket of six major peers, advanced 0.09% on Friday to trade at 81.10 by 08:22 GMT. Prices shifted in a daily range between day’s high and low, 81.15 and 81.02. The contract settled last week 0.45% 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 for a third day at 789.56 on Thursday, 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.

Chinese demand

On the Shanghai Gold Exchange, the trading volume for bullion of 99.99 percent purity exceeded 13 000 kilograms every day this week, in comparison with daily average of 12 782 kilograms last year.

According to the World Gold Council, China probably overtook India as the largest consumer in 2013.