Gold weekly recap, November 25 – November 29

Gold gained on Friday, but fell for a third consecutive month in November after overall upbeat data from the U.S. reinforced speculations for an earlier-than-expected reduction in Fed’s monetary stimulus. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at the lowest since January 2009, adding to bearish sentiment. However, strong Chinese physical demand and a weaker dollar supported the market.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February rose by 1% on Friday and settled at $1 250.80 per troy ounce after swinging between day’s high and low of $1 254.50 and $1 240.40 an ounce respectively. Prices touched $1 226.40 per troy ounce on November 25, the lowest since July 8th, but closed the week 0.6% higher. Gold plunged 5.5 percent on monthly basis, the most since June and the biggest drop in November since 1978.

The precious metal has fallen 25% so far this year and is heading for the first annual drop since 2000 as investors lost faith in the metal as a store of value amid a rally in U.S. equities to a record and muted inflation.

Trade volumes were light on Thursday, with Comex floor trading scheduled to remain closed for Thanksgiving. An abbreviated session was set on Friday.

Gold was pressured earlier in the week following overall upbeat data from the U.S. which fueled speculations for an earlier-than-expected Fed stimulus tapering, despite some points of weakness.

On Wednesday, the Labor Department reported that the number of Americans who filed for initial unemployment benefits fell by 10 000 to a two-month low of 316 000 in the week ended November 23, defying analysts’ projections for an increase to 330 000. Applications for the previous week were revised up by 3 000 after being initially estimated at 323 000.

The number of people who continued to receive unemployment benefits slid by 91 000 to 2.776 million, the lowest since January 2008, sharply outperforming analysts’ expectations for a 14 000 drop. Those Americans who have exhausted traditional state help and are receiving extended benefits under federal programs rose by 3 400 to 1.31 million in the week ended November 9.

However, also on Wednesday, the Commerce Department reported that orders for U.S. durable goods fell in October, coinciding with recent reports which suggested confidence in the U.S. was hurt last month by the 16-day government shutdown. Bookings for goods set to last at least three years fell by 2.0% in October as demand for civilian and defense aircraft plunged, marking a major retreat from September’s upward-revised 4.1% advance. Analysts expected a 1.9% contraction.

Separate data showed manufacturing activity in the Chicago region eased from a month earlier but remained firmly in the expansion zone. The Chicago Purchasing Managers’ Index fell to 63.0 in November from 65.9 a month earlier, but outperformed expectations for a drop to 60.5. Readings above the neutral level of 50 indicate advancing activity in the respective sector.

The metal was further pressured after a private report showed rising consumer confidence, backing the case for an earlier-than-expected Fed tapering. The Thomson Reuters/University of Michigan final index of consumer sentiment jumped to 75.1 in November after plunging to an eight-month low of 72.0 in October. Analysts expected a moderate rebound to 73.5.

The Federal Reserve revealed last week that it might be trimming its record-high stimulus “in the coming months”, if the economic recovery starts moving in the right direction. Fed minutes showed that policy makers “generally expected that the data would prove consistent with the committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.”

A weaker dollar eased pressure on the metal. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, rose by 0.06% on Friday to 80.68. The December contract held in a days range between 80.70 and a three-week low of 80.50 and settled the week slightly lower after falling by 0.75% in the preceding two weeks. Weakening of the dollar makes commodities priced in it cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a third day at 843.21 tons on Friday, the lowest since January 2009. Outflows have totaled nearly 464 tons this year. Billionaire hedge-fund manager John Paulson who holds the biggest stake in the SPDR Gold Trust told clients on November 20 that he wouldn’t invest more money in his gold fund because it isn’t clear when inflation will accelerate. US inflation is still well below the Fed target of 2.00%.

China demand

However, the yellow metal continued to draw support by increased demand from China, the world’s second largest consumer. Gold shipments to China from Hong Kong rose in October as jewelers and retailers rebuilt inventories with the peak-gold demand season of the year coming closer.

According to calculations by Bloomberg based on data from the Hong Kong Census and Statistics Department, net imports, after deducting flows from China into Hong Kong rose to 129.9 metric tons in October, compared to 109.4 metric tons a month ago. The data also showed that purchases reached an all-time high of 130 tons in March and the amount for the first 10 months of 2013 surged to 955.9 tons, more than double from a year earlier.

China is poised to overtake India as number one consumer of bullion by the end of the year, with demand set to reach 1 000 tons, according to estimates by the World Gold Council.

The majority of respondents in a Bloomberg News survey remained bearish for a second week as eighteen analysts expected prices to fall next week, while nine were bullish and three neutral.