Gold snapped six days of advances, the longest winning run since June 2012, as investors weighed prospects for further Fed stimulus cuts and signs of decreasing physical demand from China. However, a weaker US dollar relieved some pressure on the yellow metal, while at the same time assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged on Wednesday.
On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April traded at $1 287.90 per troy ounce by 08:11 GMT, losing 0.55% for the day. Prices touched a session high at $1 293.20 per troy ounce, while day’s low was touched at $1 287.60 an ounce. Yesterday, prices touched $1 296.30 per troy ounce, the strongest level since November 8, capping a sixth day of advances, the longest winning run since June 2012.
Gold futures are up 7.1% this year after a slump in emerging markets boosted demand for haven assets. 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 and amid speculation Fed will continue scaling back its monetary stimulus throughout 2014.
According to a report by Goldman Sachs, cited by Bloomberg: “Prices will drop to $1,050 an ounce by the end of the year amid expectations for growth in the U.S. “Further depreciation in emerging-market currencies may also hurt gold-jewelry demand in those countries”.
Chinese demand
On the Shanghai Gold Exchange, trading volumes for spot bullion of 99.99 percent purity declined for a second day yesterday, after reaching a nine-month high of 25 725 kilograms on February 10.
“While some investors may be thinking of increasing their gold allocation, physical buyers retreat at higher prices,” said Xue Na, an analyst at Nanhua Futures Co., cited by Bloomberg. “The $1,300 mark may be difficult to cross.”
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
Janet Yellens second day of testimony to the Senate Banking Committee, was postponed due to a snowstorm that tracks across the US East Coast. The hearing was scheduled to be held at 15:30 GMT today.
Yesterday, Federal Reserve President for St. Louis James Bullard said policy makers will be cautious, when deciding to change the pace of their cuts to to bond buying, because this can have potentially significant impact on markets.
Janet Yellen, in her first testimony to Congress as head of the Fed, said the central bank will “likely reduce the pace of asset purchases in further measured steps at future meetings”, if the labor market continues to recover and inflation rises.
Yellen underscored “continuity” in the Federal reserve monetary policy, emphasizing that she strongly approves the approach of her predecessor, Ben Bernanke.
The Fed Chairman also reiterated that the pace of cutting back Fed stimulus was not on a “preset course”.
The central bank announced its decision to reduce monthly monetary stimulus by 10 billion USD to 65 billion USD at the meeting on policy in January, underscoring that labor market indicators, which “were mixed but on balance showed further improvement”, while nation’s economic growth has “picked up in recent quarters.” Fed policymakers are to hold their next meeting on March 18th-19th.
The Federal Reserve 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.
However, a weaker dollar eased some pressure on the yellow metal. The US dollar index, which measures the greenback’s performance against a basket of six major peers, fell by 0.22% on Thursday to trade at 80.58 by 08:00 GMT. The March contract held in a range between days high and low of 80.75 and 80.53, respectively. Weakening of the greenback makes dollar-denominated commodities cheaper for foreign currency holders and boosts their appeal as an alternative investment.
Meanwhile, assets in the SPDR Gold Trust, the biggest bullion-backed ETP, remained at 798.85 tons yesterday and havent declined since January 23. Holdings are 0.1% higher this year after losing 41% in 2013. A total of 553 tons has been withdrawn last year. Billionaire hedge-fund manager John Paulson who holds the biggest stake in the SPDR Gold Trust told clients at the end of last year that he wouldn’t invest more money in his gold fund because it isn’t clear when inflation will accelerate.
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