Gold futures hover near seven-week low on Fed stimulus outlook, China demand

Gold futures traded close to the weakest level in seven weeks as further signs of recovery in the US backed the case for the Federal Reserve to keep cutting stimulus and amid decreasing physical demand from China, the largest global consumer of the metal. Also fanning negative sentiment, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were reduced yesterday by the most in almost six weeks.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in June traded little changed at $1 284.50 an ounce by 07:51 GMT, adding 0.04% for the day. Prices shifted in a daily range between $1 287.20 an ounce and $1 278.30 an ounce, the weakest level since February 11.

Bullion has lost 3.1% in March as the US economy expanded at a faster-than-expected pace and after Federal Reserve Chair Janet Yellen said the central bank’s bond-buying program may be brought to an end this fall, with borrowing costs starting to rise by mid-2015. The Federal Reserve trimmed its monthly bond-buying program by $10 billion at the last three meetings.

However, the precious metal rose 7 percent this quarter as demand for haven assets was boosted amid a rout in emerging markets and Russias annexation of Crimea, which left Russia and the West involved in their worst conflict since the end of the Cold War.

Federal Reserve Chair Janet Yellen said yesterday that the US economy still needed monetary stimulus for “some time” and that most of the Fed officials shared the same opinion.

“The near-term sentiment for gold appears negative,” Howard Wen, an analyst at HSBC Securities (USA) Inc., wrote in a note, cited by Bloomberg. Bullions drop from the year’s high on March 17 “was largely explained by the combination of receding geopolitical tensions and the Fed’s guidance for higher interest rates.”

Chinese demand

On the Shanghai Gold Exchange, trading volumes for spot bullion of 99.99 percent purity declined to a two-month low yesterday as it traded 66 cents an ounce below the London price.

According to data by the World Gold Council, China overtook India as the largest global consumer of the precious metal last year, consuming a record 1 066 tons.

US economy outlook

Gold prices drew some support yesterday, after the monthly business activity survey for the area of Chicago showed that the corresponding PMI slowed down to a reading of 55.9 this month, the weakest since September, from 59.8 in February. Analysts had predicted a smaller decline to 58.5.

However, data showed last week that consumer spending in the US rose in February by the most in three months as incomes increased, adding to evidence the economy is gaining momentum after the unusually harsh winter.

Consumer spending, which accounts for almost 70% of the American economy, rose 0.3% last month, in line with analysts’ estimates and after a 0.2% increase in the previous month that was smaller than previously reported. Incomes also advanced 0.3% in February, in line with analysts’ expectations and matching January’s gain, data by the US Commerce Department showed today.

The US citizens were trying to shrug off the effects of the inclement weather as they rushed out to shop, supported by a labor market that was also gaining traction.

In addition, the US economy expanded more rapidly in the final three months of 2013 than previously estimated as consumer spending jumped by the most in three years, while initial jobless claims unexpectedly declined last week, curbing demand for the precious metal as a store of value.

The US economy expanded at a 2.6% annualized rate in the final three months of 2013, slightly below analysts’ expectations of a 2.7% gain, but up from a preliminary estimate of 2.4%, a report by the the Bureau of Economic Analysis showed yesterday. The US gross domestic product grew 4.1% in the third quarter.

Also fanning negative sentiment, assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were reduced by 3.89 metric tons, the most in tonnage terms since February 19th, to reach 813.08 yesterday. Holdings in the fund are up approximately 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.