Gold rebounds on QE outlook following mixed U.S. data

Gold fell to a session low in the late European session, followed by a rebound during American trading after a day of controversial U.S. economic data, which left investors ambivalent about their expectations for the future of Feds monetary easing program.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1 338.50 per troy ounce at 16:37 GMT, down 0.38% on the day. Prices held in a wide range between days high at $1 345.80, the highest since July 24, and days low of $1 318.19, which was touched minutes after todays U.S. consumer inflation was released. The precious metal surged 1.59% on Wednesday, extending current weeks advance to 1.9% so far.

Gold traded higher throughout the day and touched a three-week high but was pressured after the U.S. Department of Labor reported at 12:30 GMT that the number of people who filed for initial unemployment benefits during the week ending August 10 fell to 320 000, the lowest since January 2008. This outperformed analysts expectations for a rise to 335 000 and was well below the preceding weeks upward revised reading of 335 000 from 333 000 people.

Meanwhile, a separate report showed that consumer inflation both on annual and montly basis met economists projections, offsetting yesterdays weaker producer inflation. Month-on-month, Julys Consumer Price Index (CPI) met projections for a seasonally adjusted 0.2% rise, but remained below Junes 0.5% jump. Year-on-year, consumer prices rose by 2.0%, also matching expectations and outperforming the preceding periods 1.8% increase.

The Bureau of Labor Statistics also reported that core consumer prices, which exclude the more volatile food and energy prices, rose by a seasonally adjusted 0.2% on a monthly basis in July, meeting economists projections and Junes reading. Year-on-year, the index marked a 1.7% advance, matching projections and surpassing the previous periods 1.6% gain.

Meanwhile, the New York Empire Manufacturing Index for August fell to 8.24, confounding expectations for an advance to 10.00 from Julys reading of 9.46.

Gold sinked to a session low of $1 318.10 per ounce after the jobless and consumer inflation data was released amid speculation that the upbeat readings will support a probable deceleration of Feds monetary easing program in as early as September. Dollar-denominated commodities have largely been tracking such shifting expectations throughout the year as they tend to trade inversely to the greenback. An exit from the stimulus will strengthen the dollar, thus making dollar-priced raw materials more expensive for foreign currency holders and limit their appeal as an alternative investment. Also, one of golds main uses is as a hedge against inflation, which often arises as central banks ease money supply. An exit from a program like Feds Quantitative Easing will delvier a heavy blow to golds demand prospects.

Rebound followed

The precious metal however rebounded towards positive territory as following data indicated that the U.S. economys recovery pace is still fragile and is not in the state of a straight forward expansion. Separate reports showed that U.S. industrial production remained flat in July, defying analysts projections for a 0.3% advance. Meanwhile, Junes reading received a revision to an expansion by 0.2%, down from 0.3%.

This comes after yesterday the U.S. Labor Department said that month-on-month, the producer prices remained flat in July, rebutting expectations for a 0.3% surge after a 0.8% rise in June. On an annual basis, the Producer Price Index advanced by 2.1%, again below market projections for a 2.4% gain and below the previous period’s 2.5% jump.

The U.S. Labor Department also reported that month-on-month Core PPI, which excludes the more volatile energy and food costs, underperformed analysts’ expectations and June’s 0.2% advance and rose by only 0.1%, which gave investors a sign that Fed’s monetary stimulus might remain untouched for a while longer. Year-on-year, Core producer inflation rose by 1.2%, the lowest reading since November 2010. This was below an anticipated 1.3% gain and June’s 1.7% surge.

Capacity utilization also fell and missed projections. The indicator contracted to 77.6% in July, underperforming expectations for a rise to 77.9%. Junes reading was revised down to 77.7% from 77.8%, spurring additional concern over the U.S. economic activity.

A separate report showed manufacturing activity in Philadelphia expanded at the lowest pace since four months, following the unexpected drop of the New York Empire Manufacturing Index. The August Philadelphia FED Index was projected to decline to 15.0 from Julys reading of 19.8% but defied expectations and plunged to 9.3.

The dollar lost positions after the release of the bearish second batch of data for the day. The dollar index, which measures the greenbacks performance against six major counterparts, fell to 81.71 at 16:36 GMT, down 0.06% on the day. The September contract ranged between days high and low of 81.99 and 81.46 respectively. The U.S. currency gauge fell 0.2% on Wednesday and trimmed further its weekly advance on Thursday to little over 0.6% so far.

Market players will be keeping a close eye on Fridays construction data and consumer sentiment in order to gauge the possibility of Fed to begin tapering its bond purchasing program next month. Tomorrow, both Building Permits and Housing Starts are projected to have advanced in July. Meanwhile, the Preliminary University of Michigan Confidence should have risen to 85.3 from 85.1in July, according to analysts expectations.