Gold touches two-week low on increased Fed taper bets

Gold declined to the lowest level in two weeks on expectations Fed will keep scaling back its stimulus. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF were reduced on Wednesday, adding to bearish sentiment. However, a weaker dollar relieved some pressure on the yellow metal.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in February lost 0.15% to trade at $1 236.70 per troy ounce by 07:46 GMT. Prices touched a session high at $1 238.90, while day’s low was touched at $1 231.30 an ounce, the weakest level since January 10th.

Gold futures settled last 5-day period 0.45% higher, after adding 0.95% in the previous week. 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.

“Everyone’s waiting for the Fed meeting next week,” said Mark To, head of research at Wing Fung Financial Group, a Hong Kong-based trader and refiner, cited by Bloomberg.

Fed stimulus outlook

Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion from $85 billion, underscoring improving labor market conditions.

A series of recent overall upbeat data provided signs that US economic growth is accelerating and recovery seemed sustainable. US home construction slowed less than analysts had projected, while industrial output expanded for a fifth consecutive month. Only the consumer sentiment came at a lower-than-expected reading in January, but this was not enough to change the overall market consensus that Fed will continue tapering throughout 2014.

US data scheduled to be released today may reveal that the number of people continuing to file for unemployment benefits decreased, while at the same time, home sales increased. If data comes in line with expectations, it will support the case for less Fed stimulus.

The central bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th. The Federal Open Market Committee is scheduled to meet next on January 28-29.

However, a weaker dollar supported the yellow metal. The US dollar index, which measures the greenback’s performance against a basket of six major peers, fell by 0.1% on Thursday to trade at 81.23 by 07:42 GMT. Prices shifted in a daily range between day’s high and low, 81.39 and 81.22. Weakening of the greenback makes dollar-denominated commodities cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were reduced to 795.85 tons, after surging by 0.9% on January 17th, the largest daily increase since November 2011. 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.