Gold hovers near 17-week high as weak US data weighed against decreasing Chinese demand

Gold traded little changed, but close to 17-week high as market players weighed weaker-than-expected US economic data against waning demand at higher prices. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, rose yesterday for a third day, the longest streak of gains since November 2012 and were poised for the first monthly increase since December 2012.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April traded little changed at $1 342.50 per troy ounce by 07:52 GMT, after earlier touching $1 345.50 per troy ounce, the strongest level since October 30. Days low was touched at $1 337.90 an ounce.

The yellow metal settled last week 0.4% higher, after a 4.1% advance in the previous 5-day period, the biggest weekly gain since the period ended August 16. Gold futures are up 11% this year and are poised for the first back-to-back monthly increase since the two-months through August, after a rout in emerging markets and signs of slowing US growth, 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.

Chinese demand

On the Shanghai Gold Exchange, trading volumes for spot bullion of 99.99 percent purity rose to a two-week high yesterday, even as bullion for immediate delivery traded at a discount to London prices for a fourth day.

Higher bullion prices have hurt demand in China, which according to data by the World Gold Council released last week, overtook India as the largest global consumer last year, consuming a record 1 066 tons.

“Demand in China will be sustained as incomes expand, supporting prices above $1,000 and extending bullion’s flow from west to east”, said Davis Hall, global head of foreign exchange and precious metals advisory at Credit Agricole SA’s private-banking unit, cited by Bloomberg.

Fed stimulus outlook

Few downbeat US reports spurred speculations that the US economy may slow its growth, fueling demand for gold as a haven asset.

The Conference Board research group announced the results from its monthly survey on US consumer confidence, with the corresponding index coming in at 78.0 in February, trailing analysts’ projections of a smaller decline to 80.0 and down from 80.7 in the preceding month.

Consumer confidence, as an indicator, provides clues regarding the tendency in consumer spending in the country, while the latter accounts for almost two thirds of nation’s Gross Domestic Product.

In addition, the S&P/Case-Shiller Home Price Index, which measures the change in selling prices of homes in 20 large cities in the US, rose at an annualized pace of 13.42% in December from a year ago, compared to a 13.71% increase in the previous month, the biggest increase since February 2006. Analysts had predicted a 13.38% advance. On a monthly basis, US home prices declined 0.1% in December, in line with analysts’ forecasts and after falling 0.1% in November.

Moreover, the US National Association of Realtors reported on Friday that home purchases declined 5.1% to a 4.62 million annualized rate in January, trailing analysts’ forecasts for a smaller drop to 4.68 million from December’s 4.87 million units sold in the previous month. The report added to concerns that the US housing market is not recovering as expected.

However, the minutes of Federal Reserve Bank’s policy meeting on January 28th-29th showed that several policy makers said in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to pare back the central bank’s monthly monetary stimulus by 10 billion USD at each meeting.

As the rate of unemployment decreases at a faster than expected pace, even while other labor-market indicators signal weakness, bank’s policy makers agreed that it would “soon be appropriate” to revise their guidance about the time horizon of record-low borrowing costs.

The Federal Reserve announced in December that it will pare monthly bond-buying purchases by $10 billion, after which it decided on another reduction of the same size 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.”

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, were increased yesterday for a third day to 803.70 tons, the longest streak of gains since November 2012 and were poised for the first monthly increase since December 2012. However, the fund has lost 41% of its holdings 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. However, a government report revealed that the owner of the largest stake in the SPDR Gold Trust, kept his holdings unchanged in the fourth quarter of 2013.