Gold futures advance as investors weigh Fed stimulus against Ukraine

Gold futures rose on Wednesday as investors weighed the prospect of reduced Fed stimulus against increasing demand for a haven amid tensions in Ukraine. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, retreated from more than a three-month high yesterday.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in June surged by 0.31% to trade at $1 315.40 an ounce by 07:46 GMT. Prices shifted in a daily range between $1 316.20 an ounce and $1 309.90 an ounce. Yesterday, gold futures touched $1 306.20, the weakest level since February 14th.

Bullion has retreated from a six-month high of $1 392.60 an ounce on March 17 as turmoil over Ukraine left Russia and the West involved in their worst conflict since the end of the Cold War. The precious metal slid 3.5% last week, the most since the week ended November 22, snapping six weeks of advances.

While gold is up 9% this year amid concern the economic growth of the US may be slowing momentum and amid unrest in Ukraine, Goldman Sachs Group Inc. forecast further declines as the world’s biggest economy rebounds.

Jeffrey Currie, Goldman’s head of commodities research, said in a Bloomberg News interview this month that there are increasing chances, prices would reach $1,000 for the first time since 2009.

Bullion prices remained supported as tension between Russia and the West over Ukraine’s breakaway Crimea region continues to escalate. At their first meeting after Russia annexed Crimea last week, G-7 leaders said on March 24 that they won’t attend the planned G-8 summit in Sochi and instead will hold their own meeting in June in Brussels.

Fed stimulus outlook

The precious metal drew some support, after official data revealed yesterday that sales of new homes declined to a five-month low last month, raising concern the industry may need more time to recover after the frigid weather curbed demand earlier this year.

Purchases of new homes slid by 3.3% in February to an annualized 440 000 pace, the weakest level since September, data by the US Commerce Department showed today. January’s purchases were revised to 455 000 units from 468 000 units previously reported. Analysts’ expectations pointed to a 4.9% decline in February.

However, consumer confidence rose more than expected, reaching a 6-year high in March.

US consumer confidence increased to 82.3 this month, the strongest since January 2008, from 78.3 in February and exceeding analysts’ forecasts for a gain to 78.6, data by the Conference Board showed today.

Federal Reserve policy makers trimmed their bond-buying program by another $10 billion to $55 billion per month, last week. Moreover, Federal Reserve Chair Janet Yellen, said that the first increase in borrowing costs should come “around six months” after the end of the stimulus program. The monetary easing program is expected to be brought to an end this fall.

The Federal Open Market Committee also revised its forecasts, showing more policy makers predicted the main interest rate, now close to zero, would increase at least to 1% by the end of next year and 2.25% by the end of 2016, higher than previously forecast. The Committee also dropped the unemployment rate threshold for considering when to raise interest rates, making a transition to a wider set of data.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were reduced to 818.77 tons yesterday, retreating from the strongest level since December 13. Holdings in the fund are up 1% 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.