Gold advances amid speculation Fed may have to slow tapering

Gold advanced to one-month high after data showed the US economy created the least jobs in almost three years, boosting speculation the Fed will have to slow the pace of stimulus cuts. A weaker dollar further supported the metal, while assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at the lowest in 5 years, fanning negative sentiment.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February increased 0.14% to trade at $1 248.70 per troy ounce by 08:00 GMT. Prices touched a session high at $1 254.00, the strongest level since December 12th, while day’s low was touched at $1 247.00 an ounce. Gold futures settled last week 0.95% higher, after adding 1.95% in the previous 5-day period. However, the precious metal settled last year 28% lower, the steepest annual decline since 1981.

Fed stimulus outlook

Gold was supported on Friday after worse-than-expected employment data curbed fears the Federal Reserve might reduce further its monthly bond purchases at FOMC’s upcoming meeting. The Department of Labor reported that US employers added 74 000 jobs in December, the least since January 2011, sharply underperforming expectations for a moderate retreat in job creation to 196 000 payrolls. November’s reading received an upward revision to 241 000 from initially estimated at 203 000.

“The payroll data gave an impression that tapering may be a long-drawn process,” said David Lennox, an analyst at Fat Prophets in Sydney, cited by Bloomberg.

On the other hand, the rate of unemployment in the country dropped significantly, reaching 6.7% in December from 7.0% in the preceding month, marking the lowest rate since October 2008. However, this came as a result of a larger percentage of US citizens leaving nation’s work force. Preliminary estimates pointed that US unemployment rate will remain unchanged in December.

Fed Chairman Ben Bernanke said on December 18th that the Fed will probably continue to do a measured reduction in the pace of purchases at each meeting. According to a Bloomberg News survey of economists conducted on December 19, policy makers will cut Fed’s stimulus in $10 billion increments over the next seven committee meetings.

A weaker US dollar further supported the metal. The US dollar index, which measures the greenback’s performance against a basket of six major peers, fell by 0.14% on Monday to trade at 80.63 by 08:08 GMT. Prices shifted in a daily range between day’s high and low, 80.75 and 80.56. Weakening of the greenback makes dollar-denominated commodities cheaper for foreign currency holders and boosts their appeal as an alternative investment.

However, assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained at a 5-year low of 793.12 tons on Friday, 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.