Gold futures extend gains on Yellen comments, global physical demand weighs

Gold rose for a second day on Thursday after Fed Vice Chairwoman and President Barack Obama’s nominee to lead the Federal Reserve, Janet Yellen, backed Fed’s monetary easing program and curbed speculations for an earlier-than-expected stimulus tapering. Soft global physical demand in the third quarter however limited gains. Silver, platinum and palladium advanced.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December rose by 1.35% to $1 285.50 per troy ounce by 8:58 GMT. Prices shifted in a days range between $1 273.30 and $1 287.20 an ounce. The precious metal snapped four days of declines on Wednesday and added 1.4%, the most since October 22, paring its weekly decline to little over 0.2%.

Gold received a boost on receding concern over an earlier-than-projected deceleration of Feds quantitative easing program after Fed Vice Chairwoman Janet Yellen said she thinks the central bank has more work to do to aid the economy, backing the current pace of Fed’s monthly bond purchases.

“Our country has come a long way since the dark days of the financial crisis, but we have farther to go. Likewise, I believe the Federal Reserve has made significant progress toward its goals, but has more work to do,” Yellen said.

She called last month’s 7.3% unemployment rate too high, noting the economy and labor market were performing short of their potential, while inflation remained well below Fed’s 2% target and provided room for easy money supply. Yellen will be holding a Senate committee hearing at 15:00 GMT on Thursday and will provide further information regarding Fed’s tapering timetable.

Earlier in the week, Federal Reserve Bank of Atlanta President Dennis Lockhart said in a statement he wouldn’t rule out a so-called tapering of Fed’s quantitative easing program at FOMC’s December 17-18 policy meeting. However, he added that inflation remained low and would want to see it moving toward the 2% target. He called for “continued strong stimulus” and said the central bank wants to see economic growth reach 3% or more, a faster pace than its long-term trend.

Meanwhile, Federal Reserve Bank of Minneapolis Narayana Kocherlakota shared Lockhart’s opinion and spoke even more strongly on the need for monetary stimulus. He said the central bank should continue with its aggressive action and not scale back the program to safeguard the economy and ensure its recovery. The Federal Reserve should do “whatever it takes” to bring the economy back to full employment quickly, he said.

James Steel, an analyst at HSBC Securities Inc., wrote in a note, cited by Bloomberg: “The focus for the bullion market may shift to the upcoming testimony by Yellen. Chinese gold demand remains brisk. However, gold is likely to remain on the defensive in the near term.”

Chinese, global demand

Gold also drew some support after World Gold Council said in its quarterly report that Chinas gold jewelry demand rose to 518 tons in the first three quarters, equal to the whole of 2012. Volumes of cash gold of 99.99% purity on the Shanghai Gold Exchange surged to 15.413 tons yesterday, the most in a month.

However, the report also showed that global demand fell by 21% to 868.5 tons in the three months through September as investors continued to sell their holdings and central banks slowed purchases, which fanned negative sentiment. Assets in bullion-backed ETFs have fallen by 29% so far this year.

Holdings in the SPDR Gold Trust, the biggest gold-backed ETF, fell to 865.71 tons on Wednesday after remaining unchanged for five days at 868.42 tons, data on its web site showed. This was the lowest since the beginning of 2009.

Elsewhere on the precious metals market, silver futures for settlement in December rose by 1.85% to $20.820 per troy ounce. Prices held in range between $20.883 and $20.513 an ounce. Platinum for delivery in January traded at $1 448.70 an ounce at 8:55 GMT, up 1.17% on the day, and varied between days high and low of $1 449.35 and $1 432.70 an ounce respectively. Palladium December futures stood at $738.20 per troy ounce, up 0.37%. The contract plunged to a days low of $732.30 an ounce, near yesterdays 1-month low of $730.20, followed by a rebound to session high of $739.80 per troy ounce.