Gold futures poised for longest weekly rally since August 2011 ahead of Crimean referendum

Gold futures touched the strongest level in more than six months and headed for a sixth weekly advance, the longest winning run since August 2011, as rising tension in Ukraine, ahead of a referendum in Crimea on splitting to join Russia, and concern Chinas growth is slowing momentum, boosted demand for bullion as a store of value. Meanwhile, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, rose yesterday to the highest level since December 20th.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April rose by 0.1% to trade at $1 373.80 per troy ounce by 07:47 GMT. Prices touched a session high at $1 376.70 per troy ounce, the strongest since September 10, while day’s low was touched at $1 368.30 an ounce.

Bullion headed for a sixth weekly gain, as tension between Russia and Ukraine escalated, spurring demand for haven assets, including gold.

Gold futures are up 14% this year amid concern the economic growth of the largest bullion consumer, China, may slow, while unrest in Ukraine hurt emerging market assets already weakened by reductions in Fed stimulus, boosting demand for the precious metal as a store of value.

Chinese retail sales and industrial production data missed estimates this week, while the parliament of Crimea voted that the Black Sea peninsula will declare itself an independent state if its residents approve a March 16 referendum on splitting from Ukraine and joining the Russian Federation. US President Barack Obama and German Chancellor Angela Merkel have stated the vote has no international legitimacy and threatened political and economic sanctions for Russia.

“Gold is buoyed by what’s happening in Ukraine and increasing worries about a slowdown in China’s economy,” said Ethan Wai, a research analyst at Wing Fung Financial Group, a Hong Kong-based gold trader and refiner, cited by Bloomberg. “The pullback in equities and a weaker dollar are supportive.”

The MSCI All-Country World Index of stocks has tumbled 1.6% so far this year amid concern the growth in the worlds second-largest economy is faltering, with at least four investment banks cutting their forecasts for China.

Fed stimulus outlook

Data yesterday showed that the US economy is gaining traction, after the recent harsh weather, backing the case for the Federal Reserve to continue reducing stimulus, before exiting the program at the end of the year.

The US Census Bureau reported yesterday that retail sales in the US increased 0.3% in February, exceeding analysts’ expectations of a 0.2% gain and after a 0.6% drop in January that was larger than the 0.4% decline reported earlier. Core retail sales, which exclude the volatile automobile sales, rose 0.3% in February, above analysts’ projections for a 0.1% gain and after a 0.3% drop in the previous month, that was larger than initially reported. Retail spending is regarded as a key economic indicator as it accounts for almost 70% of the US economy.

“Consumer confidence has been pretty resilient throughout this entire period,” Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, said before the report, cited by Bloomberg. “Equities have been up a little bit for the year, so the wealth effects are still relatively favorable.”

A separate report showed the number of people filing for unemployment benefits unexpectedly declined last week, reaching the weakest level since late November. Initial jobless claims dropped to 315 000 from 324 000 a week ago, compared to analysts’ projections of an increase to 330 000.

Federal Reserve Chair Janet Yellen said last month that central bank’s officials were “open to reconsidering” the pace of reductions in monthly bond purchase, should the economy falter, in contrast with her comments made earlier in February, that US economy has gained enough strength in order to withstand reduction of monetary stimulus.

At the same time, Fed officials will try to determine whether the weakness economy has recently demonstrated is due to temporary factors, before their next policy meeting scheduled for March 18-19th.

The central bank 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.”

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.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, expanded to 813.30 tons yesterday, the strongest level since December 20th. Holdings in the fund are 0.9% up this year after it has lost 41% of its assets in 2013, that wiped almost $42 billion in value. 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.