Gold fell on Thursday as the dollar strengthened following Ben Bernankes testimony to Congress on Wednesday where he reinforced Feds view that Quantitative Easing is still expected to be tapered within the year and brought to an end by mid-2014, if the requirements are fulfilled. However, the Fed chief stated the U.S. economy currently needs Fed’s accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 277.05 per troy ounce at 8:33 GMT, down 0.04% on the day. Prices held in a tight range between days high and low of $1 278.25 and $1 273.35 per ounce respectively. The precious metal fell more than 1% on Wednesday to hit $1,269.45 a troy ounce, the weakest level since July 12, after touching days high at $1 297.85 an ounce, highest level since June 24. The metal has declined 0.6% so far this week after gaining 5.09% the preceding one.
The dollar extended positions following Bernankes testimony, thus pushing gold prices down. The U.S. currency trades inversely to dollar-denominated commodities as strengthening of the greenback makes them more expensive for foreign currency holders and reduces their appeal as an alternative investment. Also, gold is used mainly as a hedge strategy against inflation, which is poised to accelerate when monetary easing programs are used to stimulate economic growth. Therefore news about deceleration of Feds monetary stimulus tends to reduce the need for hedging, thus limiting gold demand.
The dollar index, which tracks the greenbacks performance against six major counterparts, regained positions on Wednesday and settled higher. The U.S. currency gauge for September settlement traded higher on Thursday, standing at 82.94 at 8:21 GMT, up 0.19% on the day. Futures held in range between days high and low of 83.06 and 82.76 and trimmed this weeks decline to 0.2%.
The Fed chairman said yesterday in remarks prior to his statement that Fed’s monetary stimulus is not on a “preset course” and reiterated his opinion from last week that the U.S. economy still needs an accommodative monetary policy in the foreseeable future.
“I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course,” Bernanke said. He stated that the central bank still expects to start winding down its monetary easing program by the end of the year and bring it to an end by mid-2014, if the required recovery signs are at hand. However, he left open an option for changing that plan if the economic situation shifts towards negative.
Adam Klopfenstein, a senior market strategist at Archer Financial Inc. in Chicago, said for Bloomberg: “The guessing game about the wrapping up of the stimulus continues, and that has made people nervous, and pushed them toward cash. Also, the gold market faced some resistance at 1,300.”
Gold has tumbled 24% so far this year as investors lost faith in the precious metal as a safe haven for wealth preservation. Assets in the SPDR Gold Trust, the biggest bullion backed ETP, dropped to 936.07 tons on Wednesday, the lowest since February 2009. James Steel, an analyst at HSBC Securities Inc., wrote in a note: “Shifting sentiment regarding the timing of Fed tapering will impact gold and make trading volatile. Since investment demand is weak, with ongoing gold ETF liquidation, a strong physical market is crucial if gold prices are not to sink considerably further.”
Market players will be keeping a close eye on Bernankes testimony before the Senate Banking Committee at 12:00 GMT on Thursday. Investors are also looking ahead at the remaining U.S. economic data for the week. The Labor Department will release Initial Jobless Claims on Thursday. The number of people who have filed for unemployment payments is expected to have dropped by 15 000 to 345 000 after last week an unexpected surge to 360 000 supported Bernanke’s statement that the U.S. labor market is still fragile. The Philadelphia Fed Index is also to be released on Thursday with expectations for a poorer performance, compared to the previous reading.
Elsewhere on the precious metals market, silver, platinum and palladium were also lower on the day. Silver for September delivery traded at $19.335 an ounce, down 0.44% on the day. Prices held in range between days high of $19.400 and $19.220 respectively. Platinum October futures stood at $1 409.45 an ounce, down 0.11% on the day. Prices shifted between daily high and low at $1 413.90 and $1 406.30 respectively. Palladium for September delivery fell 0.78% by 8:36 GMT, trading at $729.70 an ounce. The metal held in range between $736.10 and $728.10.