Gold weekly recap, February 17 – February 21

Gold advanced on Friday for the first time in three days after a drop in US home sales reinforced concerns that the economy is weaker than expected, boosting demand for the yellow metal as a haven asset. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, are heading for the first monthly inflow since December 2012, a report by State Street Bank & Trust Co., the marketing agent for the fund, showed.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in April rose by 0.55% on Friday to settle the week at $1 324.20 per troy ounce. Prices touched a session high at $1 328.60 per troy ounce, while day’s low was touched at $1 316.30 an ounce. On February 17, prices touched $1 332.20 per troy ounce, the strongest level since October 31st.

The yellow metal settled the 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 10% this year 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.

“Gold continues to get some support from weaker U.S. data,” Bart Melek, an analyst at TD Securities in Toronto, said in a Bloomberg interview. He also added that price gains will probably be limited as the Federal Reserve is expected to continue on with stimulus cuts.

Fed stimulus outlook

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

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 Decembers 4.87 million units sold in the previous month. The report added to concerns that the US housing market is not recovering as expected.

On Thursday, the Philadelphia Fed index, which is a closely watched gauge of US manufacturing activity in the Philadelphia region, came in at -6.3 in February, the weakest level in a year, confounding analysts’ expectations for a smaller decline to 8.0 from 9.4 in the previous month.

The US Bureau of Labor Statistics reported that the index of consumer prices in the country rose 0.1% in January compared to a month ago, in line with analysts’ estimates and after the index gained 0.2% in December. The annualized consumer price inflation came in at 1.6% last month, matching the median expert’ forecast and after a 1.5% increase in December. Core consumer prices, which exclude the volatile food and fuel categories also advanced 0.1% in January from the preceding month, while the annualized consumer price inflation increased at a 1.6% pace.

“Inflationary pressures are very muted,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, ahead of the report in a Bloomberg News interview. “It’s a positive for consumers’ purchasing power” and “should keep the Fed squarely focused on unemployment and growth.”

However, a report by Markit Economics revealed that its preliminary PMI rose to 56.7 in February, from a final reading of 53.7 in the previous month, capping the largest advance since May 2010, while analysts predicted a decline to 53.0.

A separate report by the US Department of Labor revealed the number of initial jobless claims declined by 3 000 to 336 000 in the week ended February 15th, from a week ago, when 339 000 Americans filed for initial jobless benefits.

At the same time, 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.

Janet Yellen, in her first testimony to Congress as head of the Fed, said on February 11, the central bank will “likely reduce the pace of asset purchases in further measured steps at future meetings”, but also underscored that the recovery in the labor market in the US is “far from complete”. She also reiterated that the pace of cutting back Fed stimulus was not on a preset course.

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.

A report by State Street Bank & Trust Co., the marketing agent for the fund, showed that holdings in the fund are heading for the first monthly inflow since December 2012. 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.