Gold extends November losses amid Fed tapering speculations

Gold declined on Monday, extending the worst monthly performance since June on reinforced speculations the Federal Reserve will reduce its monetary stimulus earlier than expected as the US economy outlook brightened. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at the lowest since January 2009, adding to bearish sentiment. A stronger dollar further weighed.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February declined by 1.00% by 09:47 GMT on Monday to $1 238.00 per troy ounce after swinging between day’s high and low of $1 248.40 and $1 237.00 an ounce respectively. Gold plunged 5.3 percent in November, the most since June when prices touched a 34-month low of $1 180.50 per troy ounce, and the biggest drop for a November since 1978.

The precious metal has fallen 26% 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.

Fed stimulus outlook

Recent upbeat readings from the U.S. signaled the the nations economic recovery proved to be sustainable and reinforced speculations about an earlier-than-expected reduction in Fed’s monetary stimulus.

On Friday, December 6th, the United States will release the keenly anticipated data on non-farm payrolls and rate of unemployment for November. According to analysts projections, numbers will probably show that US employment rose by 183 000 workers in November, compared to 204 000 in October. This will be the largest annual gain in payrolls since 2005.

The US unemployment rate is projected to lower to 7.2%, which is the same rate as in September and the lowest since November 2008.

The preliminary US GDP for the third quarter is expected to be revised upward to 3.1%, up from initially estimated at 2.8% in October.

“As long as U.S. economic data shows improvement, the probability of sooner-than-later tapering becomes more real, which should keep downward pressure on gold prices,” said Wang Xiaoli, chief investment strategist at CITICS Futures Co., a unit of China’s biggest listed brokerage, cited by Bloomberg.

According to Todd Elmer, a currency strategist in Singapore at Citigroup Inc., cited by the same media, “The data out of the U.S., the ISM and, of course, the payrolls on Friday, is probably going to be the more important focus for the market. If we see another 200-plus number, I think that the market is going to bring forward its taper expectation.”

The FOMCs October meeting minutes pointed that Federal Reserve officials may reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves. Central bankers are set to reconvene on December 17-18th.

Last month, a survey by Bloomberg revealed that the Fed will probably trim its asset purchases to $70 billion from $85 billion at its March 18-19th meeting.

A stronger dollar further pressured gold. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, rose by 0.16% on Monday to reach 80.81 at 09:58 GMT. The December contract held in a day’s range between 80.86 and low of 80.51. The index settled last week mostly unchanged after falling by 0.75% in the preceding two weeks. Strengthening of the dollar makes commodities priced in it more expensive for foreign currency holders and limits 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

Chinese strengthening economy, boosts demand for physical purchases of gold.

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.

On Sunday the National Bureau of Statistics and China Federation of Logistics and Purchasing said that the gauge of activity in Chinese manufacturing came in at a value of 51.4 in November, confirming the reading reached in October, which was also the highest in 18 months. Experts had projected that the index will slow down to 51.1 in November.

These better-than-projected results have been supported mostly by firm domestic and foreign demand. The sub-index of output rose to 54.5 in November from 54.4 in October, while the gauge of new export orders jumped to 50.6 last month from 50.4 in October. An index, tracking employment, gained for a second consecutive month to reach a value of 49.6, or the strongest reading since March.

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.