Gold extends losses as Fed taper outlook weighs

Gold declined for a second day, retreating from 1-month high as investors reassessed their expectations for the duration of the Fed stimulus program. A stronger dollar also weighed, while assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were reduced to 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 0.49% to trade at $1 239.30 per troy ounce by 08:15 GMT. Prices touched a session high at $1 243.50, while day’s low was touched at $1 238.00 an ounce. Yesterday the contract lost 0.85%.

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.

Fed stimulus outlook

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.

Yesterday, Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, called for continued reduction of the Feds bond-buying program. Fisher said that he was glad with the currently planned reduction in $10 billion increments, but he would rather prefer a reduction in $20 billion increments, while his colleague said he would prefer the stimulus program to be ended before late 2014.

FOMCs next policy meeting will be held on January 28-29th.

Recent upbeat US data supported Feds tapering decision and increased bets for further reduction at FOMCs next policy meeting.

Yesterday, the Census Bureau, part of the US Department of Commerce, reported retail sales increased 0.2% in December, exceeding analysts’ expectations of a 0.1% increase. In November, retail sales gained 0.4%, after they have been revised downwards from earlier estimates of a 0.7% increase.

Data also showed that core retail sales, or those excluding automobiles, rose 0.7% in December, after a downward revision to 0.1% from earlier estimates of a 0.4% increase in November. Retail sales are considered as a crucial indicator regarding the trend in consumer spending and overall economic development in the United States. Consumer spending has a key role as it accounts for almost 70% of the US economic growth.

A stronger US dollar further weighed. The US dollar index, which measures the greenback’s performance against a basket of six major peers, advanced 0.29% on Wednesday to trade at 80.97 by 08:12 GMT. Prices shifted in a daily range between day’s high and low, 81.00 and 80.75. 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, were reduced to 789.56 on Tuesday, 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.