Gold fluctuates on Fed stimulus outlook, drop in SPDR Gold Trust holdings

Gold swung between gains and losses on Tuesday as investors weighed broad expectations for the Federal Reserve to refrain from trimming its monetary stimulus program this year against a steep drop in holdings in the SPDR Gold Trust, the biggest bullion-backed ETF. Market players remained wary ahead of the release of key U.S. employment data for September. Silver, platinum and palladium posted moderate losses.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December were little changed at $1 315.40 per troy ounce at 7:57 GMT, down 0.02% on the day. Prices shifted in a days range between $1 317.30 and $1 313.20 per ounce after falling by 0.1% on Monday.

The precious metal fluctuated on Tuesday ahead of the release of key U.S. employment data. The most anticipated September unemployment rate and non-farm payrolls will be published on Tuesday at 12:30 GMT, coupled with average hourly earnings and average weekly hours. The report will not reveal any information about the government shutdown but it will be the final employment data the Fed will use before FOMC’s October 29-30 meeting. Some analysts expect tapering to take part in December but many have begun to speculate that we won’t see any deceleration before 2014.

Economists polled by Reuters project payrolls to have surged by 180 000 in September following a rise of 169 000 in August, while the unemployment rate is expected to have remained flat at 7.3%. Worse than expected readings will further pressure the U.S. dollar, allowing gold to extend positions and vice versa.

Howard Wen, an analyst at HSBC Securities Inc., wrote in a note: “Bullion edges lower in lackluster trading ahead of the U.S. nonfarm payrolls release. The data will likely hold implications to the near-term direction of bullion as a disappointing jobs report may boost gold prices while a better-than-expected report may be a drag on prices.”

Lawmakers reached an agreement last week to extend the U.S. borrowing authority through February 7 and provide government funding until January 15, However, there was no resolution to their long-term divides on fiscal policy and no major policy changes sought earlier by Republicans were achieved, leaving the issue for a revisit in February.

A senior Federal Reserve official said on Monday that it will be tough for the central bank to take a decision to start scaling back its bond purchases in December, given the lost output during the 16-day government shutdown and the still standing differences between Democrats and Republicans.

Chicago Fed President Charles Evans said for CNBC: “October is a tough one. December? I think we need a couple of good labor reports and evidence of increasing growth, GDP growth. It is probably going to take a few months to sort that one out. It is very difficult to feel confident in December given that we’re going to repeat part of what just took place in Washington.”

The U.S. dollar index, which measures the greenbacks performance against six major peers, traded at 79.77 at 7:49 GMT, up 0.04% on the day. The December contract held in range between days high and low of 79.73 and 79.86. The U.S. currency gauge rose by less than 0.1% on Monday after it slumped to a 8-1/2 month low of 79.55 on Friday and settled the week 1% lower.

SPDR Gold Trust holdings

Gold was pressured on Tuesday after assets in the SPDR Gold Trust, the biggest bullion-backed ETP, fell by 10.51 tons to 871.72 tons on Monday, the biggest single-day drop since July. This was the lowest level of holdings since February 2009. Assets have fallen by 430 tons this year after the Federal Reserve announced it intends to begin scaling down its $85 billion per month bond purchases in 2013 and bring them to an end by 2014. The fall has been a significant contributor to the 22% drop in gold prices this year as the fund is considered as a representative of the thinking of large investors.

A Hong Kong-based trader said for CNBC: “The drop doesnt bode too well for prices, especially now, when there hasnt been any U.S. data for a while. However, prices will be range-bound till we get nonfarm data later today. It should also get some support from talk that tapering could get delayed into next year.”

Elsewhere on the precious metals market, silver futures for December settlement fell by 0.54% to $22.158 per troy ounce at 7:51 GMT and held in range between $22.267 and $22.060 an ounce. Platinum for delivery in January traded at $1 432.70 per ounce, down 0.41%, and shifted in a days range between $1 436.65 and $1 431.75. Palladium December futures declined by 0.41% to $747.20 an ounce. The metal surged to session high of $752.10, the strongest level since August 26, while days low stood at $747.10 per ounce.