Gold weekly recap, December 2 – December 6

Gold fell on Friday amid speculations that better-than-expected US data may prompt the Federal Reserve to taper stimulus. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained for a second day at the lowest since January 2009, adding to bearish sentiment. A weaker dollar relieved some pressure on the metal.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February fell by 0.28% on Friday and settled at $1 228.40 per troy ounce after swinging between day’s high and low of $1 243.30 and $1 211.20 an ounce respectively. Prices touched $1 211.10 per troy ounce on December 4th, the lowest since July 5th to close the week 1.8% lower. Last month, gold plunged 5.5 percent, the most since June and the biggest drop in November since 1978.

The precious metal has fallen 27% 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.

James Steel, an analyst at HSBC Securities (USA) Inc. in New York, said, cited by Bloomberg: “Gold has been dragged lower, for the bulk of this year, on the uncertainty over a possible Fed tapering, forward guidance on QE ’tapering’ would remove this uncertainty and provide some relief for the bullion markets.”

The yellow metal 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 Tuesday, the Institute for Supply Management reported that manufacturing growth in the U.S. accelerated to the highest in 2-1/2 years. The ISM Manufacturing index surged to 57.3, defying analysts’ projections for a decline to 55.0 from 56.4 in October.

The report showed activity in the manufacturing sector expanded for a sixth consecutive month and the overall economy grew for the 54th straight month. The new orders, production, employment and inventories sub-indexes also advanced, while supplier deliveries slowed.

The New Orders Index increased in November by 3% to 63.6 and the Production Index jumped by 2% to 62.8. The Employment Index posted at 56.5%, an increase of 3.3% compared to October’s reading of 53.2. This reflects the highest level since April 2012 when the Employment Index registered 56.8%. Supplier deliveries fell to 53.2 from October’s 54.7.

On Thursday, the US Commerce Department reported the nation’s preliminary Gross Domestic Product grew at a 3.6% annualized rate in the third quarter, up from the initial estimate of 2.8% and the strongest since Q1 of 2012, beating analysts’ projections for a 3.1% expansion. According to the report, US growth was mainly driven by the largest increase in inventories since early 1998. Inventories increased at a $116.5 billion annualized pace in Q3, compared to $86 billion rate the preceding quarter.

A separate report provided by the Labor Department showed that the number of people who filed for initial unemployment benefits sharply dropped in the week ended November 30. Initial Jobless Claims declined to 298 000 last week, compared to an upward revised 321 000 claims in the preceding week, confounding analysts’ expectations for a jump to 325 000.

On Friday, the Labor Department reported that unemployment in the U.S. fell to 7.0% in November, the lowest in five years, beating projections for a minor decline to 7.2% from October’s 7.3%.

U.S. employers added more jobs last month than projected. Non-farm payrolls jumped to 203 000, confounding expectations for a retreat to 183 000 from October’s downward revised 200 000. The progress in the labor market will probably provide a spark for the US economy, analysts expected.

The recovering labor market led to improving sentiment and higher spending, despite a 0.1% decline in household income. Household spending, which accounts for 70% of the economy, rose by 0.3% in October, beating both projections and last month’s increase of 0.2%.

US average hourly earnings increased to 0.2% in November from the previous month to reach $24.15, a 2% yearly increase. Average weekly hours for all workers also increased, from 34.4 in October to 34.5 in November.

Core personal consumption expenditures (PCE) met analysts projections on both monthly and annual basis, jumping by 0.1% and 1.1% in October, respectively.

The FOMC’s 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.

The market may be underestimating the probability “of a vote to taper” this month, and the dollar may have begun a multi-year bull market, Credit Suisse Group AG wrote in a December 4th report, cited by Bloomberg.

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

Fed Reserve Bank of Atlanta President Dennis Lockhart said that any decision to taper should be accompanied by a limit on the size of the program or a timetable for ending it.

A weaker dollar eased some pressure on the metal. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, fell by 0.03% on Friday to 80.26. The December contract held in a day’s range between 80.62 and a five-week low of 80.22 and settled the week 0.52% lower after falling by 0.23% 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 at 838.71 tons on Thursday, the lowest since January 2009. Outflows have totaled nearly 468 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%.

Gold analysts are bearish for a third consecutive week, the longest stretch since February 2010. According to a survey, by Bloomberg News, sixteen analysts expect gold to fall next week, 11 are bullish and two neutral.