Gold hovers close to 1-month high as investors assess demand

Gold advanced on Tuesday as investors weighed the influence of the recent rally on demand. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained at the lowest in 5 years and this combined with a stronger dollar held gold gains in check.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February increased 0.13% to trade at $1 252.70 per troy ounce by 07:48 GMT. Prices touched a session high at $1 253.80, while day’s low was touched at $1 250.20 an ounce. Yesterday prices touched $12.5450 per troy ounce, the strongest level since December 12th. 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 as investors lost faith in the metal as a store of value.

Chinese demand

On the Shanghai Gold Exchange, the trading volume for bullion of 99.99 percent purity declined to 14 630 kilograms yesterday, after an eight-month high of 24 875 kilograms in the previous week.

“Physical demand is very price-sensitive, especially at the retail level and while that has helped gold hold up so far this year, we may see some of that demand drop off as prices climb,” said Lv Jie, an analyst at Cinda Futures Co., cited by Bloomberg.

According to the World Gold Council, China probably overtook India as the largest consumer in 2013.

Fed stimulus outlook

Gold continued to be supported after worse-than-expected employment data increased bets the Fed may have to slow the pace of stimulus cuts. The Department of Labor reported on Friday 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.

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 workforce. Preliminary estimates pointed that US unemployment rate will remain unchanged in December.

Fed decided on December 18th to cut its monthly bond purchases by $10 billion to $75 billion, this month, citing improvements in the labor market. Fed Chairman Ben Bernanke said, regarding this decision, that 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 stronger US dollar fanned some negative sentiment. The US dollar index, which measures the greenback’s performance against a basket of six major peers, advanced 0.18% on Tuesday to trade at 80.76 by 07:46 GMT. Prices shifted in a daily range between day’s high and low, 80.79 and 80.67. Strengthening of the dollar makes commodities priced in it more expensive for foreign currency holders and limits 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 for a fourth consecutive day on Monday, 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.