Gold swings on QE against physical demand outlook

Gold swung between gains and losses on Wednesday as prices drew support by increased physical demand. However, expectations of positive readings of this weeks key U.S. economic indicators spurred concern over an earlier deceleration of Feds monetary stimulus.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 244.95 per troy ounce at 8:04 GMT, up 0.12% on the day after dropping more than 0.5% earlier. Prices ranged between days low at $1 236.05 that was hit around 7:25 GMT and high of $1 248.85 during the Asian session. The precious metal is up 1% so far this week after plunging 4.77% last week and 6.80% the week before that.

The precious metal has declined 27% this year, 23% of which during the second quarter, amid expectations of an earlier-than-expected scale back of Fed’s monetary easing program. The future of Quantitative Easing has been one of the main factors to determine the greenback’s strength. Ben Bernanke, Fed chairman, announced after the latest FOMC meeting that the central bank won’t scale down its monetary easing program just yet, but that is highly possible to happen within the end of the year, if the needed stable recovery signs are provided. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, but sentiment points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops to 7%, which Fed expects to happen around mid-2014.

The recent slump in gold prices lured in more physical buyers, but sales arent expected to repeat Aprils frenzy buying. Investors are more cautious this time. Assets in the SPDR Gold Trust, the largest bullion-backed ETP, fell to 964.69 metric tons yesterday, the lowest since 2009. According to Bloomberg, global ETP holdings decreased by 22% this year. Market players are awaiting this weeks key U.S. data. The ISM Non – Manufacturing Composite index is due on Wednesday, coupled with the Trade Account, which is expected to show a 40 billion deficit. Also on Wednesday, the ADP Employment Change and Initial Jobless Claims will give a preliminary insight into the U.S. labor market’s state, prior to Friday’s most important Change in Non-Farm Payrolls and Unemployment Rate indicators.

Sun Yonggang, a macroeconomic strategist at Everbright Futures Co. in Shanghai, said for Bloomberg: “Lower prices will induce some buying but any rally will be halted by a stronger dollar. Investors are waiting for the payroll numbers, which will shape the next round of QE expectations.”

Gold was pressured yesterday as positive U.S. data and financial problems in the peripheral Euro zone countries strengthened the dollar. Factory Orders in the U.S. rose more than expected, pointing at increased activity in the industrial sector. Factory Orders for May surged to 2.1%, well above Aprils 1.3% revised reading and surpassing projections of a 2.0% increase.

Elsewhere on the precious metals market, silver gained, while platinum and palladium marked daily losses. Silver for September delivery traded at $19.425 an ounce, up 0.60% on the day. Prices ranged between days high and low at $19.587 and $19.315 respectively. Platinum October futures stood at $1 361.85, down 0.44% for the day. Palladium for September delivery lost 0.93%, trading at $682.50. Palladium held in range between days high and low at $687.70 and $681.10 respectively.