Gold falls as bears prevail, Fed stimulus outlook supports

Gold fell on Monday as data by the U.S. Commodity Futures Trading Commission showed hedge funds doubled their short holdings last week just before Fed Vice Chairwoman Janet Yellen pledged to maintain the central banks current bond purchasing pace if appointed as Bernankes successor. Prices however remained supported and near the $1 300 level as a recent string of downbeat data curbed speculations for an earlier-than-expected Fed tapering, backing Yellens comments. Silver, platinum and palladium also fell.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December fell by 0.29% to $1 283.70 per troy ounce by 10:25 GMT. Prices shifted in a days range between $1 289.00 and $1 282.40 an ounce respectively. The precious metal rose for a third straight day on Friday following Yellens dovish comments and erased its weekly decline.

Gold was pressured on Monday as investors got less bullish on gold after hedge funds doubled their short holdings in the week ended November 12. Data by the U.S. Commodity Futures Trading Commission showed the net-long position in gold fell by 37% to 55 456 options and futures in the week ended November 12, the biggest fall in nine months. Wagers that prices will fall rose to 54 143 futures and options combined, up from 26 490 a week earlier.

Holdings in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a third day at 865.71 tons on Friday, data on the web site showed. This was the lowest level since the beginning of 2009. The metal however drew some support after government data showed the trust’s largest investor, Paulson & Co., kept its 10.23 million shares unchanged in the third quarter from the end of the previous one, after its holdings were cut by half in the three months through June. Assets in the ETF have declined by 36% this year.

Donald Selkin, New York-based chief market strategist at National Securities Corp., commented for Bloomberg: “People were feeling very bearish before Yellen’s statement. Her comments were dovish and can be seen as a postponement to tapering, which is definitely helpful for gold. But, the main reasons why gold has fallen are intact. Inflation is low, and equity markets continue to march ahead.”

Yellen said she doesn’t see evidence at this point that the current policy is inflating assets bubbles, further curbing speculations for an earlier-than-expected tapering of the stimulus.

In her prepared comments prior to the hearing, Yellen 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.

Gold rose back to positive weekly territory on Friday after a string of downbeat U.S. data backed Yellens intentions to maintain Feds monetary stimulus if confirmed as next Federal Reserve Chairman.

A report by the Federal Reserve showed U.S. industrial production also surprisingly contracted last month. Output fell by 0.1%, confounding projections for a 0.2% advance after it expanded by 0.7% in September. Capacity utilization disappointed and fell to 78.1%, trailing both expectations and September’s reading of 78.3%.

According to a separate report, manufacturing activity in the New York Region unexpectedly contracted by the most since January as new orders fell. The NY Empire State Manufacturing Index declined by 2.21 in November, defying analysts’ expectations for a rise to 5.00 from the preceding period’s reading of 1.52. The new orders index slumped to -5.33, down from 7.75 in October. Labor market conditions also worsened with the employment index falling to 0.00 from 3.61 in the preceding month.

Also fanning negative sentiment for the U.S. economic recovery, the Labor Department reported on Thursday that more people than expected applied for initial unemployment benefits last week. Initial jobless claims fell to 339 000 in the week ended November 9, underperforming expectations for a drop to 330 000.

A weaker greenback also supported gold. The U.S. dollar index, which measures the dollar’s performance against six major counterparts, traded at 80.76 at 10:32 GMT, down 0.14% on the day. Prices shifted in a day’s range between 80.97 and 80.69. The U.S. currency gauge fell on Friday and settled the week 0.5% lower. A weakening of the greenback makes dollar-priced raw materials cheaper for foreign currency holders and limits their appeal as an alternative investment.

The World Gold Council said in its quarterly report last week that China’s 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.

Elsewhere on the precious metals market, silver futures for settlement in December fell by 0.38% to $20.468 per troy ounce by 10:11 GMT and held in range between $20.795 and $20.612. Platinum for delivery in January traded at $1 437.15 an ounce at 10:20 GMT, down 0.12% on the day. Palladium December futures declined by 0.88% to $726.20 per ounce by 10:20 GMT and shifted in a days range between $726.00 and $732.10 an ounce.