Gold surges to three-month high ahead of Yellen testimony, Chinese demand

Gold advanced to three-month high on Tuesday, ahead of the testimony of the newly-appointed Fed Chairman, Janet Yellen to Congress and as Chinese demand rose to a nine-month high, extending last years record purchases. Meanwhile, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged for a fourth day on Monday, after rising 0.5% on February 4, the most since January 17.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April traded at $1 284.00 per troy ounce by 08:06 GMT, surging 0.73% for the day. Prices touched a session high at $1 287.40 per troy ounce, the strongest level since November 18, while day’s low was touched at $1 273.70 an ounce.

Gold futures settled last 5-day period 1.8% higher, marking the largest weekly advance in more than a month, after losing 2% in the previous week. 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 and amid speculation Fed will continue scaling back its monetary stimulus throughout 2014.

“Chinese buyers have been quite active but the longer-term picture for gold remains bearish against the backdrop of continued stimulus reduction in the U.S.,” said Yang Xi, a Hangzhou-based analyst at Yongan Futures Co., cited by Bloomberg. “Gold’s support may come in the form of haven demand, if further tapering results in more capital outflows from emerging markets.”

Meanwhile, market players keenly anticipated the first testimony of Janet Yellen, the newly elected chairman of the Federal Reserve, to further gauge the US central banks economic outlook and signals for any change in Feds monetary policy. Yellen is scheduled to read her prepared testimony to Congress at 15:00 GMT, after which she will answer lawmakers questions.

Chinese demand

On the Shanghai Gold Exchange, which reopened on February 7 after being shut for a week, trading volumes for spot bullion of 99.99 percent purity rose to 25 725 kilograms yesterday, the most since May.

Chinese demand climbed 41% to 1 176.4 metric tons in 2013, compared to a year ago, data by the nation’s Gold Association showed.

According to data by the World Gold Council, China probably overtook India as the largest global consumer last year.

Fed stimulus outlook

Gold’s demand was heightened on Friday after a government report showed the US employers added fewer jobs than analysts projected.

A report by the US Department of Labor revealed the non-farm payrolls in the country increased by 113 000 in January, well below experts’ forecasts of an increase to 180 000 and after US employers added 75 000 jobs a month ago, the smallest change since January 2011. Data showed that the small number of added jobs in January was driven by retailers and government agencies as they have cut payrolls at the fastest pace in more than a year, while at the same time construction companies and manufacturers boosted employment.

The lower-than-expected number of non-farm payrolls in January raised concerns over the uneven recovery of the US economy and fueled speculations that Fed may slow the pace of scaling back stimulus.

“Data continues to point to an uneven U.S. recovery, and coupled with the selloff in emerging markets, gold and silver are benefiting from increased demand for safer assets,” said Zhu Siquan, an analyst at GF Futures Co., a unit of the Guangzhou-based firm that bought Natixis Commodity Markets Ltd. last year, cited by Bloomberg.

However, gold prices remained under some pressure, after on January 29, Fed policy makers reached an unanimous decision to cut Fed’s monthly bond purchases for a second straight meeting by another $10 billion. This was the first meeting without dissent since June 2011 as policy makers were brought together by concern over Fed’s swelled balanced sheet which raised risks of asset bubbles.

The Federal Open Market Committee said it will further trim the central bank’s Quantitative Easing program based on improving labor market conditions and as economic growth accelerated in the recent quarters.

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.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained unchanged at 797.05 tons for a fourth day on Monday, after rising 0.5% on February 4, the most since January 17. 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.