Gold swings on Fed stimulus outlook

Gold rose to a fresh 2 1/2-month high on Monday after which it retreated back to negative territory as investors weighed the outlook for Fed paring its monetary easing program following Fridays disappointing new homes sales. Mondays durable goods data fell in focus. Assets in the SPDR Gold Trust marked the biggest daily gain since August 2012.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1 395.40 per troy ounce at 8:12 GMT, down 0.03% on the day. Prices rose to a days high of $1 406.50 earlier in the day, the strongest level since June 6, while days low stood at $1 391.10 per ounce. The precious metal jumped by 1.6% on Friday and settled the week 1.5% higher after surging 6% in the preceding two five-day periods.

Gold surged to a 2 1/2-month high on Friday and extended gains on Monday after unexpectedly disappointing U.S. housing data supported some of the FOMC policy makers’ stance that the U.S. economy requires further monitoring before Quantitative Easing is decelerated. The U.S. Commerce Department reported that 0.394 million new homes were sold in the U.S. in July, marking a 13.4% decline. This was the lowest level in nine months and the steepest drop in three years. New Homes Sales completely mismatched projections for a rise to 0.490 million units sold. At the same time, June’s reading received a downward revision to 0.455 million from the previous reading of 0.497 million homes.

This comes after St. Louis Federal Reserve Bank President James Bullard, one of Fed’s monetary stimulus supporters, said that the central bank should take time and assess the U.S. economy and inflation thoroughly before tapering the bond purchases. He commented for Reuters: “I don’t think we have to be in any hurry. Inflation is running low and we have got mixed data on the economy. We can afford to be very deliberate in our decision making.”.

Meanwhile, Atlanta Fed President Dennis Lockhart, also a Quantitative Easing supporter, said he will vote yes for decelerating the bond purchasing program if the economic data is supportive. He commented for Reuters: “I would be supportive in September as long as the data between now and then basically confirm the path we’re on. I am confident in a continuation of this sort of moderate growth path.”

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “QE is still going to be the driving factor until such time as it’s stopped or until they start tapering off. It’s going to cause volatility.”

Last Wednesday’s released minutes from the Federal Open Market Committee’s July meeting showed that most of the policy makers supported Fed Chairman Ben Bernanke’s timeline to taper the $85 billion bond purchasing program by the end of the year.

“Almost all participants confirmed that they were broadly comfortable with the committee reducing the pace of its securities purchases later this year,” the minutes revealed. Only some of the members stated that it is important to remain patient and evaluate additional information on the economy before making a decision regarding trimming Quantitative Easing.

The precious metal has rebounded nearly 16% since falling to a 34-month low of $1 180.15 a troy ounce on June 28 but is still en route to cap a 12-year bull run amid expectations that the Federal Reserve will decelerate its monetary stimulus and bring it to an end by mid-2014.

Holdings in the SPDR Gold Trust, the biggest bullion-backed ETP, rose to 920.13 tons on Friday and marked a second weekly advance in a row. Assets rose on a weekly basis for the first time since December the preceding five-day period.

Market players will be keeping a close eye on this week’s U.S. economic data to further gauge Quantitative Easing’s tapering prospects. On Monday, Durable Goods Orders are expected to have declined by 4% in July. Tuesday’s Consumer Confidence is projected to have fallen to 79.3 in August from 80.3 in the preceding month. The S&P/Case-Shiller Composite-20 Home Price Index might also post a decline. Wednesday’s Pending Home Sales might have advanced by 0.1%. On Thursday, the Preliminary Revised GDP is likely to have grown by 2.3%, while consumer spending and core consumer spending (Personal Consumption Expenditures) probably surged by 1.8% and 0.8% in the second quarter respectively. Initial Jobless Claims probably fell by 1 000 in the week ending August 24. On Friday, Personal Income and Spending are expected to have advanced in July but at a slower pace than in June. Core PCE on monthly and annual basis likely rose in July and the Chicago PMI and Final University of Michigan Confidence are projected to have advanced in August as well.