Gold futures hover near one-week low as investors weigh Fed stimulus against Ukraine

Gold futures traded close to one-week low as investors weighed the prospects of reduced Fed stimulus against the crisis in Ukraine. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged yesterday, after retreating from the highest level since December 20th.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April traded at $1 353.30 per troy ounce at 07:55 GMT, down 0.42% on the day. Prices shifted in a daily range between $1 360.10 an ounce and $1 351.60 an ounce. Yesterday, gold futures touched $1 351.20 per troy ounce, the weakest level since March 12.

However, on March 17 prices touched $1 392.60 an ounce, the highest level since September 9, before losing as much as 1.2%, the steepest daily drop since January 30.

Bullion settled last week 3.2% higher, marking a sixth consecutive weekly advance, the longest winning run since August 2011.

Market players awaited the outcome of the Federal Reserves two-day policy meeting, which is broadly expected to cut monthly bond buying by another $10 billion, before the central bank announces its decision later today. Although Russias President Vladimir Putin said his country had no ambitions to split Ukraine further, the US and Europe announced they will impose more sanctions for his drive to annex Crimea.

Gold futures are up 13% this year amid concern the economic growth of the largest bullion consumer, China, may slow, while unrest in Ukraine hurt emerging market assets already weakened by reductions in Fed stimulus, boosting demand for the precious metal as a store of value.

“Traders have turned their attention to the outcome of the Fed meeting,” said Mark To, head of research at Wing Fung Financial Group, a Hong Kong-based trader and refiner, cited by Bloomberg. “Sanctions by the U.S. and European Union were seen as minimal but as long as the situation in Ukraine remains unresolved, this should keep prices supported.”

Fed stimulus outlook

The Federal Reserve, which reduced monthly bond buying by $10 billion at the prior two meetings, will cut purchases by another $10 billion to $55 billion, and continue reductions at the same pace at every meeting before exiting the program at its Oct. 28-29 gathering, according to a March 14-17 survey by Bloomberg.

However, Federal Reserve Chair Janet Yellen said last month that central bank officials were “open to reconsidering” the pace of reductions in monthly bond purchases, should the economy falter, in contrast with her comments made earlier in February that US economy has gained enough strength in order to withstand the reduction of monetary stimulus.

Building permits for future projects rose 7.7% to a 1.018 million annualized pace last month, the most since October, data by the US Department of Commerce showed yesterday. The number of permits filed for future projects in January was upward revised to a 0.945 million pace from a 0.937 million reported earlier. Analysts had expected a smaller gain to a 0.960 million pace in February. The increase reflected a surge in applications for apartment-building construction. However, one-family building permits declined for a third consecutive month, reaching the weakest level in a year.

At the same time, housing starts declined at a 0.2% annualized rate to 0.907 million last month, after a revised up 0.909 million pace in the previous month. Analysts had predicted an increase to 0.910 million housing starts in February.

A separate report revealed that consumer prices in the US rose 0.1% in February, in line with analysts’ projections and matching January’s advance. Data also showed that more than 50% of the increase was due to higher food costs.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were unchanged at 812.78 tons on Tuesday, after retreating from the highest level since December 20th. Holdings in the fund are up 0.9% this year after it lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons has been withdrawn last year.