Gold advances ahead of US jobs data, Chinese markets reopen

Gold advanced on Friday and was poised for the biggest weekly gain in a month, ahead of US jobs data that may reveal US employment growth rebounded from a two-year low and after China, which probably overtook India as the largest consumer last year, opened its markets following the Lunar New Year break. Meanwhile, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a third day on Thursday, after rising 0.5% on February 4, the most since January 17.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April traded at $1 262.50 per troy ounce by 07:56 GMT, adding 0.42% for the day. Prices touched a session high at $1 264.00 per troy ounce, while day’s low was touched at $1 256.00 an ounce. On February 5th, the yellow metal touched $1 274.10 per troy ounce, the strongest level since January 27th.

Gold headed for a 1.5% advance this week, the largest in a month, after it settled last 5-day period 2% lower, snapping five consecutive weeks of gains, the longest rally since September 2012. The yellow metal advanced 3.4% in January as MSCI All-Country World Index of equities plunged 4.1% amid concern that a slump in emerging markets may worsen. However, gold 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.

Chinese demand

On the Shanghai Gold Exchange, which opened today after being shut for a week, since January 31st, trading volumes for bullion of 99.99 percent purity rebounded from the weakest level in two years on January 30th.

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

Howard Wen, an analyst at HSBC Securities (USA) Inc., today said in a Bloomberg interview: “The re-entry of China into the markets may buoy gold.”

Fed stimulus outlook

The yellow metal drew support as few downbeat reports cast some doubt that the Federal Reserve will keep scaling back its stimulus at each policy meeting, before exiting the program at the end of the year.

A report by the US Bureau of Economic Analysis, that revealed the nation’s trade deficit widened to $38.7 billion in December from $34.25 billion in the preceding month, defying analysts’ forecasts of an increase to 36 billion US dollars.

Automatic Data Processing Inc. (ADP) reported on Wednesday, that the US private sector added 175 000 new jobs in January, trailing analysts’ expectations of an increase to 185 000. At the same time, new jobs added in December were downward revised to 227 000 from earlier estimates of 238 000. The ADP index is released two days before the release of the official data by the US Department of Labor. The report, due to be published on Friday, may show non-farm payrolls increased by 180 000 in January, after they rose by 74 000 in December, the weakest level since June 2012.

On Tuesday, the US Census Bureau reported that factory orders decreased 1.5% in December, less than the median analysts’ forecast of a 1.8% drop. In November the orders for factory goods rose by 1.8%.

The US Institute for Supply Management (ISM) reported on Monday, that its manufacturing index declined to the lowest level in seven months in January, due to a slump in new orders.

However, yesterday, the number of initial jobless claims came in at 331 000 in the week ended February 1st, down from 348 000 in the previous week and less than expectations for 335 000 more people, filing for unemployment benefits.

Moreover, data by the Institute for Supply Management (ISM) made it clear that corporate structures in US services sector increased their activity in January. The corresponding PMI came in at a reading of 54.0 last month, exceeding experts’ forecasts of a value of 53.7, after the index stood at 53.0 in December. Values above the key level of 50.0 are indicative for expansion in the sector.

In addition, data today may reveal US employment growth accelerated in January, from the slowest pace in two years, according to a survey by Bloomberg. The official report is scheduled to be released at 13:30 GMT. Higher-than-expected figures will certainly add to speculations that the Federal Reserve will further reduce stimulus.

Gold prices remained under pressure, as last week Fed policy makers reached an unanimous decision to cut Fed’s monthly bond purchases for a second straight meeting by another $10 billion. This was the first meeting without dissent since June 2011 as policy makers were brought together by concern over Fed’s swelled balanced sheet which raised risks of asset bubbles.

The Federal Open Market Committee said it will further trim the central bank’s Quantitative Easing program based on improving labor market conditions and as economic growth accelerated in the recent quarters.

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.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained unchanged for a third day on Thursday, after rising 0.5% on February 4, the most since January 17. 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.