Gold declines ahead of the Federal Reserve minutes

Gold declined on Wednesday ahead of the release of FOMCs last meeting minutes and amid speculations that the central bank may continue to reduce its monthly bond-buying program as the US economy improves. A stronger dollar further weighed, while assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at a 5-year low, adding to bearish sentiment.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February declined 0.30% to trade at $1 226.30 per troy ounce by 08:16 GMT. On January 6th, prices touched $1 247.70 an ounce, the strongest level since December 16th. Prices swung between day’s high and low of $1 230.10 and 1224.90 per troy ounce, respectively. Gold futures settled last 5-day period 1.95% higher, the largest advance in ten weeks. However, the precious metal settled last year 28% lower, the steepest annual decline since 1981, as investors lost faith in it as a store of value amid a rally in U.S. equities to a record and muted inflation.

Fed stimulus outlook

The Federal Reserve Bank said on December 18th that it will reduce its monthly bond purchases in January from $85 billion to $75 billion. Gold was pressured after a recent series of upbeat US economic data supported Fed’s tapering decision and sent equities rallying. The data reinforced speculations that the Fed might extend the reduction of its monetary stimulus program in the near future.

Yesterday, gold was pressured after the US Commerce Department reported that the US trade deficit narrowed to $34.25 billion in November, defying analysts’ projections that the trade deficit will widen to $40.00 billion. In October the US trade deficit was downwardly revised from $40.64 to $39.33 billion.

Data showed that the US imports declined 1.4% to $229.1 billion, while exports rose 0.9% to a record high $194.9 billion.

On Monday, the US Census Bureau released a report that showed the nation’s factory orders increased by 1.8% in November, from October’s 0.9% decline, while analysts predicted the factory orders will increase by 1.7%.

However, a report by the Institute for Supply Management (ISM) revealed the activity in the US sector of services unexpectedly decreased in December. The corresponding Services PMI declined to a reading of 53.0 last month from 53.9 in November, short of analysts’ projections of an increase to 54.5.

Meanwhile, investors awaited the release of the Federal Reserve minutes from its last meeting and a report by the ADP research institute on the number of workers added in December in the US private sector.

The report may show that the US private sector added 200 000 workers in December, after gaining 215 000 in November. The US Labor Department will release the number of non-farm payrolls on Friday. A strong employment data will increase the bets for further Fed tapering, which will be negative for the gold market.

“Assuming the economic recovery plays out as we expect, we will likely continue to reduce the pace of those purchases, and eventually eliminate them, over this year,” said yesterday San Francisco Fed President John Williams, cited by Bloomberg.

According to the median estimate of economists surveyed by Bloomberg on December 19th, the Federal Reserve may reduce the purchases in $10 billion increments over the next seven meetings, before ending the program in December 2014.

A stronger dollar also weighed. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, added 0.10% to trade at 81.09 by 08:08 GMT. Prices shifted in a daily range between day’s high and low, 81.08 and 80.98. The US dollar index settled last week 0.7% higher. 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 ETP, remained at 794.62 tons, the lowest since January 2009, data on the website showed. The fund has lost 41% of its holdings in 2013. A total of 553 tons has been withdrawn in 2013. 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.