Gold hovers near 1-month high, set for second weekly advance

Gold retreated on Friday but remained near Thursdays one-month high as investors weighed broad expectations for the Federal Reserve to delay trimming its monetary stimulus until next year against lingering physical demand from India, last years biggest consumer. Silver, platinum and palladium declined as well.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December traded at $1 342.10 per troy ounce at 7:53 GMT, down 0.61% on the day. Prices held in range between session high and low of $1 347.90 and $1 340.30 per ounce respectively. The precious metal added 1.1% on Thursday but trimmed its weekly advance to 2% on Friday.

Gold is set for a second straight weekly gain after disappointing employment data throughout the week supported speculations that the Federal Reserve will refrain from scaling back its $85 billion per month bond purchases until some point in 2014. The Labor Department reported yesterday that the number of people who filed for initial unemployment benefits in the week ended October 19 fell by 12 000, underperforming the median estimate of 48 economists surveyed by Bloomberg for a fall to 340 000. The preceding period’s reading received and upward revision to 362 000 from initially estimated at 358 000. The four-week average, which irons out weekly volatility, rose to 348 250 from 337 500 in the previous week.

The number of people who continued to receive unemployment payments fell by 8 000 to 2.874 million in the week ended October 12, beating predictions for a 7 000 decrease. That number does not include the beneficiaries of extended payments under federal programs. laims filed by federal employees declined by 25 939 in the same week.

Earlier in the week, the government agency reported that the U.S. economy added 148 000 jobs in September, sharply underperforming a median forecast of 93 economists surveyed by Bloomberg for a 180 000 surge. August’s reading received an upward revision to 193 000 payrolls from initially estimated at 169 000, signalling that the U.S. labor market lost momentum prior to the 16-day government shutdown.

The U.S. unemployment rate, based on a separate Labor Department survey of households, fell by 0.1% to 7.2% in September, beating expectations to remain flat. However, the participation rate, which measures the number of people who are either employed or are actively looking for work, remained the lowest since August 1978 at 63.2%.

Chen Min, a precious metals analyst at Jinrui Futures in Shenzhen, said for CNBC: “Weak employment data signals a positive effect for gold as markets adjust their expectations regarding a tapering. However, it is still too early to reach the conclusion that the U.S. recovery is stagnant.”

According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin decelerating its monetary stimulus in March. The yellow metal has been tracking shifting expectations for a reduction in Fed’s bond purchases throughout the year and has lost 20% so far in 2013.

A separate report yesterday showed that manufacturing activity in the U.S. fell to a 12-month low and slowed down for the first time since September 2009. The decline was based on weak new orders growth, the slowest in six months, despite a rise in employment.

Chris Williamson, Chief Economist at Markit, commented: “The flash PMI provides the first insight into how business fared against the backdrop of the government shutdown in October, and suggests that the disruptions and uncertainty caused by the crisis hit companies hard. The survey showed the first fall in manufacturing output since the height of the global financial crisis back in September 2009. We can expect GDP growth to have suffered a setback in the fourth quarter, but it is too early to estimate the extent of the shutdown. The Fed will be equally unsure of the underlying health of the economy, and will no doubt want to see the economic data stabilise, which could take until the end of the year, before making any firm policy decisions.”

The U.S. dollar index traded at 79.13 at 7:54 GMT, down 0.15% on the day. The December contract plunged to 79.07, the weakest since September 2012, and extended its weekly decline to over 0.7%. Weakening of the greenback makes dollar-denominated commodities cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Weak India demand

Golds gains however remained capped on lingering demand from the worlds top consumer. The Asian country raised taxes and restrictions on imports of gold earlier in the year as a measure to curb a record-high current account deficit. According to Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, inbound shipments may drop to less than 150 tons in the second half of the year, down from 478 tons a year earlier. Data by the Commerce Ministry showed that imports of gold and silver fell to $800 million in September from $4.6 billion during the comparable period in 2012.

Elsewhere on the precious metals market, silver December futures declined by 1.79% to $22.413 per ounce by 7:49 GMT. Prices shifted in a days range between $22.752 and $22.343. Platinum for delivery in January traded at $1 442.35 per troy ounce, down 0.9%, and held in range between days high and low of $1 453.25 and $1 440.55 an ounce. Palladium for settlement in December fell by 0.80% to a one-week low of $741.80, while days high stood at $748.10 per troy ounce.