Gold trades little changed in a cautious trade ahead of Fed’s decision

Gold traded little changed on Wednesday, as investors expected Fed policy makers will scale back stimulus at their two-day meeting, which concludes today. Reduced physical demand from China weighed on prices, while assets in the SPDR Gold Trust, the biggest bullion-backed ETF remained close to a 5-year low, adding to bearish sentiment.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April traded little changed at $1 251.30 per troy ounce by 08:33 GMT, adding 0.06% for the day. Prices touched a session high at $1 256.00, while day’s low was touched at $1 250.70 an ounce. On January 27th, prices touched $1 276.70, the strongest level since November 19th.

Gold futures settled last 5-day period 1.3% higher, capping a fifth consecutive week of gains, the longest rally since September 2012. 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 and amid speculation Fed will continue scaling back its monetary stimulus throughout 2014.

“Bullion faces pressure from investor expectations that the Fed may announce another round of tapering to the asset-purchase program,” said James Steel, an analyst at HSBC Securities (USA) Inc., cited by Bloomberg.

Chinese demand

Even though on the Shanghai Gold Exchange, trading volumes for bullion of 99.99 percent purity exceeded the daily average of the fourth quarter, which was about 11 525 kilograms, every day since January 6th, data revealed that they declined for a third day yesterday.

According to data by the World Gold Council, China probably overtook India as the largest global consumer in the previous year.

Fed stimulus outlook

Investors awaited Fed meetings outcome as Fed policy makers conclude a two-day meeting today.

The US Commerce Department reported yesterday that durable goods orders plunged 4.3% in December, confounding analysts’ expectations for a 1.8% increase. Bookings for durable goods or those meant to last at least three years were downward revised in November to a 2.6% advance from a previously estimated 3.4% gain.

Core durable goods orders or those excluding the volatile transportation items, declined 1.6% in December, the largest slump since March, defying analysts’ forecasts for a 0.5% advance. Orders for core capital goods, excluding defense, fell 3.7%% last month, confounding projections for a 1% gain and after a downward revised increase of 2.7% in November.

However, a separate report showed that the consumer confidence rose for a second month, reaching 80.7 in January, the highest since August, exceeding analysts’ forecasts of an increase to 78.0. In November the consumer confidence stood at 77.5.

The downbeat reports on the durable goods orders did little to alter the overall market expectations for stimulus cuts at the two-day FOMC’s meeting, which concludes later today.

Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion this month 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.

Adding to bearish sentiment, assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained a fourth day at 790.46 tons, after being reduced by 0.7% on Wednesday, the biggest one-day drop since December 23rd. 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.