Gold steady ahead of FOMC meeting conclusion, physical demand weighs

Gold inched up on Wednesday as investors wagered the Federal Reserve will refrain from trimming its monetary stimulus this month, and most likely delay tapering until next year. Weak physical demand however kept gains in check and held the precious metal on negative weekly territory. Silver, platinum and palladium tracked golds upward momentum.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December rose by 0.19% to $1 348.80 per troy ounce by 9:18 GMT. Prices held in range between days high and low of $1 350.00 and $1 338.70 an ounce respectively. The precious metal fell by 0.7% on Tuesday but trimmed its weekly decline to 0.2% on Wednesday.

Gold is poised to settle the month higher after political wrangling in Washington caused a 16-day partial government shutdown and put the U.S. economy at risk of an unprecedented default, forcing investors to seek safe haven. Recent data showed the economy lost momentum even before the fiscal deadlock began in October, supporting broad speculations the Federal Reserve will delay tapering its monetary stimulus until some point in 2014. According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin scaling back its bond purchases in March.

A report by the Census Bureau showed yesterday that core retail sales, which exclude the volatile automobile sales, rose by 0.4% in September after adding 0.1% in August and matched analysts’ projections.

However, total retail sales inched down 0.1% last month following the biggest drop in sales at auto dealers since October 2012. Analysts expected a 0.1% increase after August’s 0.2% expansion. Automobile sales plunged 2.2% last month following a 0.7% increase in August.

Despite the signs of sustained strength in the U.S. economy prior to the 16-day government shutdown in October, market players await the upcoming economic data which will include the fiscal deadlock period. A report by the Conference Board showed that consumer confidence in the U.S. fell to 71.2 in October, the lowest since April. September’s reading received an upward revision to 80.2 from initially estimated at 79.7. Analysts expected a moderate drop to 75.0.

A separate report by the Department of Labor showed that wholesale prices in the U.S. unexpectedly dropped by 0.1%, defying analysts’ projections for a 0.2% expansion following August’s 0.3% gain. This was the first decline since April. Year-on-year, the producer price index advanced by 0.3%, the least since October 2009, and underperformed both expectations for a 0.6% gain and the preceding period’s 1.4% increase.

On Monday, U.S. pending home sales plunged 5.6%, the most since May 2010, and confounded analysts’ projection for a 0.1% increase after falling by 1.6% in August. At the same time, manufacturing production managed to barely rise last month after the production of computer and electronic goods fell, indicating that business spending by the end of the third quarter eased. Output at factories inched up by 0.1% and August’s reading received a downward revision to 0.5%. Analysts surveyed by Bloomberg expected a 0.3% advance in September.

Physical demand

Despite the recent downbeat economic readings, expectations for an imminent deceleration of Feds monetary easing program, even a delayed one, have kept market sentiment subdued throughout the year and limited physical demand. Gold has fallen 20% this year after tracking shifting expectations for changes in Feds tapering timetable.

Lv Jie, an analyst at Cinda Futures Co., commented for Bloomberg: “Even if not today, tapering will come. That’s weighed on gold for most of this year and we don’t see it changing.”

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a third day on Tuesday at 872.02 tons, data on the web site showed.

Meanwhile, volumes for cash gold of 99.99% purity on the Shanghai Gold Exchange fell to 7.879 tons yesterday from an average of 12.069 tons per day last month, bourse data showed.

A stronger dollar also limited gains. The U.S. dollar index, which measures the greenbacks performance against six major peers, traded at 79.63 at 9:12 GMT, down 0.07% on the day. The December contract added 0.4% on Tuesday and is up almost 0.5% this week.

Elsewhere on the precious metals market, silver futures for settlement in December rose by 1.07% to $22.733 per troy ounce by 9:14 GMT. Prices rose to a session high of $22.758, the highest since October 25. Platinum for delivery in January traded at $1 471.45 an ounce, up 0.65% on the day. The metal previously surged to session high of $1 473.35, near Mondays 1-1/2 month high. Palladium December futures stood at $748.10 an ounce, up 0.17% on the day and held in range between $748.70 and $743.30 per troy ounce.