Gold at two-month high on physical demand, Fed outlook

Gold futures rose to a two-month high on Monday on increased physical demand and expectations that the Federal Reserve wont rush tapering its monetary stimulus following last weeks mixed economic data.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1 374.00 per troy ounce at 8:25 GMT, up 0.22% on the day. The precious metal hit a two-month high earlier in the day at $1 384.00 an ounce, the highest since June 18, while days low stood at $1 371.70. Futures rose 1.02% on Friday, a seventh daily gain in eight, and settled the week 4.78% higher, posting its best weekly performance in five.

Gold extended last weeks gains and is headed for a second monthly advance in a row as increased physical demand underpinned prices. Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, rose on a weekly basis for the first time since December. Holdings surged by 0.5% to 915.32 tons.

Meanwhile, according to World Gold Council data, global bar and coin sales rose by 78% to 507.6 tons in the second quarter compared to a year earlier as demand in India and China, the worlds top two consumers, more than doubled. Jewelry demand increased by 47% to 575.5 tons.

Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., said for Bloomberg: “Sentiment toward gold is turning more positive as evidenced by the SPDR and CFTC data. While the World Gold Council data merely confirmed what we knew, it shows that there are still people out there interested in owning gold.”

QE outlook

Investors remain cautious ahead of the minutes of FOMC’s latest meeting on July 31, due to be released on Wednesday. Market players hope for information that will bring some clarity on when the Federal Reserve will begin tapering its monetary easing program following the mixed U.S. economic data that was published last week.

Gold rose on Friday as another batch of disappointing data indicated that the U.S. economy remains fragile, which eased speculations that Fed will begin decelerating its Quantitative Easing program soon. Government data showed that U.S. building permits rose by 2.7% to 0.943 million units in July, underperforming expectations for a 2.9% increase to 0.945 million, but still outdoing June’s upward revised reading of 0.918 million. U.S. housing starts rose by 5.9% to 0.896 million last month, mismatching projections for an 8.3% surge to 0.905 million. The indicator however marked an advance from last month’s reading of 0.846 million units, which also received an upward revision from 0.836 million.

A separate preliminary report by the Bureau of Labor Statistics showed that Non-Farm Productivity rose in the second quarter by 0.9%, exceeding expectations for a 0.6% advance. The numbers marked a major improvement compared to the preceding three-month period’s reading, which was revised from a 0.5% increase to a 1.7% contraction. The government agency also reported that Unit Labour Costs surged by 1.4% in the second quarter, compared to a 1.2% rise forecast and a 4.2% decline in the first three months of the year.

Meanwhile, a preliminary consumer sentiment index based on the Reuters/University of Michigan Surveys of Consumers marked a decline in August compared to July. The Preliminary University of Michigan Confidence index fell to 80.0 this month, defying analysts’ forecast for an advance to 85.3 from July’s reading of 85.1.

On Thursday, a report showed that U.S. industrial production remained flat in July, defying analysts’ projections for a 0.3% advance. Meanwhile, June’s reading received a revision to an expansion by 0.2%, down from 0.3%.

Capacity utilization also fell and missed projections. The indicator contracted to 77.6% in July, underperforming expectations for a rise to 77.9%. June’s reading was revised down to 77.7% from 77.8%, spurring additional concern over the U.S. economic activity.

A separate report showed manufacturing activity in Philadelphia expanded at the lowest pace since four months, following the unexpected drop of the New York Empire Manufacturing Index. The August Philadelphia FED Index was projected to decline to 15.0 from July’s reading of 19.8% but defied expectations and plunged to 9.3. The negative data offset a previous upbeat Initial Jobless Claims reading. The U.S. Department of Labor reported that the number of people who filed for initial unemployment benefits during the week ending August 10 fell to 320 000, the lowest since January 2008. This outperformed analysts’ expectations for a rise to 335 000 and was well below the preceding week’s upward revised reading of 335 000 from 333 000 people.

Market players will also be looking ahead at the upcoming U.S. data to gauge the strength of the U.S. economy. On Wednesday, Existing Home Sales in July are expected to have risen to 5.13 million on Wednesday, up from June’s 5.08 million. On Thursday, last week’s Initial Jobless Claims likely rose by 10 000 to 330 000, while the Markit Flash U.S. Manufacturing PMI for August is projected to have advanced to 54.0 from July’s 53.7. On Friday, Julys New Home Sales are expected to have declined to 0.490 million houses sold, down from 0.497 million in the preceding month.

Elsewhere on the precious metals market, silver, platinum and palladium declined. Silver snapped an 8-day streak of advances for delivery in September and fell to $23.245 per ounce at 8:19 GMT, down 0.07% on the day. Prices ranged between days high and low of $23.600 and $23.053 an ounce respectively. Meanwhile, platinum October futures traded at $1 517.40 an ounce, marking a 0.67% decline. Futures held in range between $1 529.55 and $1 516.00. Palladium for delivery in September fell to $758.10 per ounce at 8:20 GMT, down 0.65%. The metal shifted between days high and low of $764.30 and $755.80 per troy ounce respectively.