Gold futures set for first monthly drop in three months on Fed stimulus outlook

Gold futures headed for the first monthly drop this year as further signs of recovery in the US backed the case for the Federal Reserve to keep cutting stimulus. Meanwhile, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged on Friday.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in June traded little changed at $1 293.80 an ounce by 07:45 GMT, losing 0.04% for the day. Prices shifted in a daily range between $1 299.10 an ounce and $1 293.80 an ounce. On Friday, gold futures touched $1 286.40, the weakest level since February 13th.

Bullion has retreated 7.1% since reaching a six-month high of $1 392.60 an ounce on March 17 and headed for a 2.4% loss this month as the US economy expanded at a faster-than-expected pace and after Federal Reserve Chair Janet Yellen said the central bank’s bond-buying program may be brought to an end this fall, with borrowing costs starting to rise by mid-2015. The Federal Reserve trimmed its monthly bond-buying program by $10 billion at the last three meetings.

However, the precious metal rose 8 percent this quarter as global growth faltered and as turmoil over Ukraine left Russia and the West involved in their worst conflict since the end of the Cold War.

“Yellen alluded to a rate hike which has pressured gold lower, but investors should remember that while data is improving, the U.S. economy is still far from strong,” Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., said from Shanghai, cited by Bloomberg. “While tension between Russia and Ukraine still exist, it isn’t rising for now and that’s also hurt sentiment toward gold.”

Yesterday, the US Secretary of State John Kerry told reporters in Paris after the meeting with his Russian counterpart Sergei Lavrov they have discussed that Russia must pull its military forces back from Ukraines border as a first step toward de-escalating the political crisis.

Fed stimulus outlook

Gold prices were pressured after data showed consumer spending in the US rose in February by the most in three months as incomes increased, adding to evidence the economy is gaining momentum after the unusually harsh winter.

Consumer spending, which accounts for almost 70% of the American economy, rose 0.3% last month, in line with analysts’ estimates and after a 0.2% increase in the previous month that was smaller than previously reported. Incomes also advanced 0.3% in February, in line with analysts’ expectations and matching January’s gain, data by the US Commerce Department showed today.

The US citizens were trying to shrug off the effects of the inclement weather as they rushed out to shop, supported by a labor market that was also gaining traction.

Also fanning negative sentiment, the US economy expanded more rapidly in the final three months of 2013 than previously estimated as consumer spending jumped by the most in three years, while initial jobless claims unexpectedly declined last week, curbing demand for the precious metal as a store of value.

The US economy expanded at a 2.6% annualized rate in the final three months of 2013, slightly below analysts’ expectations of a 2.7% gain, but up from a preliminary estimate of 2.4%, a report by the the Bureau of Economic Analysis showed yesterday. The US gross domestic product grew 4.1% in the third quarter.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were unchanged at 816.97 tons on Friday. Holdings in the fund are up 1% this year after it lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons has been withdrawn last year.