Bets against gold return amid QE outlook

Gold traded higher in the early hours of the European session on Friday, but investors remained overall bearish on the precious metal. On Thursday, following positive U.S. economic data, assets in the SPDR Gold Trust, the largest such trust, fell 0.6% to 1 003.54 metric tons, marking the biggest fall since May 21 and according to Bloomberg, the lowest level since February 2009. Gold has lost 17% of its value this year alone and is trading 28% lower than September 2011s all-time record at $1 921.15 per troy ounce. Gold traders have largely been betting according to current speculations about the direction of Feds monetary easing program.

David Lennox, an analyst at Fat Prophets in Sydney commented for Bloomberg: “The market’s watching what the Fed is going to do. We’ll be watching for indications from Bernanke about when it might end,” he said about the central banks Quantitative Easing.

Gold traders went bearish for the first time in a month as U.S. data on Thursday and news about India curbing gold imports to handle its record current account deficit weighed on gold as safe haven for wealth preservation.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded 0.37% higher on the day. The precious metal stood at $1 382.85 at 8:09 GMT, ranging between days high and low at $1 387.05 and $1 381.95 per troy ounce respectively.

Positive U.S. news weighed on prices yesterday as monetary stimulus scale back speculations once again surged. Retail Sales for May exceeded expectations of a 0.4% increase and stood at 0.6%, compared to a 0.1% gain in the preceding month. Rising Retail Sales are a sign of economy growth as consumer’s confidence rises. Core retail sales, retail sales ex autos, matched projections of a 0.3% gain, which surpassed the preceding month’s figure of a 0.1% increase. Initial Jobless Claims also outperformed expectations, by 11 000, and fell to 334 000 during the week ending June 8, compared to 346 000 in the preceding week. The Import Price Index failed to surpass expectations, slipping 0.6% on a monthly basis and 1.9% on annual, compared to projections of 0.0% and a 1.4% decrease respectively. Positive news, however, outweighed the Import Price Index, sending gold down and extending ETP routs.

Fourteen out of eighteen analysts, surveyed by Bloomberg, expect gold prices to sink during next week, while four remained neutral. A possible earlier-than-expected Quantitative Easing scale back would deliver a massive shock to gold prices. Investors buy the yellow metal in order to hedge against risks of inflation, which could be spurred by Fed’s bond purchasing program.

Japan’s central bank, Bank of Japan, took a decision on Tuesday not to expand its monetary stimulus further. BoJ stuck to its April position to increase the monetary base by 60 trillion to 70 trillion yen a year. This spurred speculation whether the U.S. central bank will follow up and reduce its own bond purchases.

Ben Bernanke, Fed chairman, said Fed’s monetary stimulus could be scaled back if the U.S. labor market showed stable improvement. According to a Bloomberg survey of economists last week, the U.S. central bank will reduce its monetary easing program to $65 billion a month in October.

Gold was further pressured as the Reserve Bank of India introduced curbs on gold imports as a mean to handle a record Current Account deficit of $32.6 billion, as gold physical demand in the Asian country spiked following golds tumble in April. India raised its import duty to 8%, up from 6% and shipments were restricted. This lead to a massive decrease in oversea shipments. According to Raghuram Rajan, chief economic adviser in the Finance Ministry, for the 14 business days through June, average shipments totaled $36 million a day. This is four times lower than the average $135 million a day figure through 13 business days ending May 20.