Gold steps down from 4-week high on profit taking, stays elevated
New York (Oct 23) Gold futures fell, but still hovered near a three-week high on Wednesday, after Tuesday's sluggish US labor data - supporting market consensus that the Federal Reserve (Fed) will keep its monetary stimulus intact possibly until March next year - lost its momentum for the commodity somewhat. The profit-taking continued even with a softer greenback as the world's reserve currency's depreciation usually increases the precious metal's shimmer because it has been traditionally viewed as the best currency-hedge.
Gold futures, therefore, retreated from their previous highs, after having risen earlier in the day and after they touched $1,344.85 an ounce on Tuesday, the highest since September 30.
Gold contracts for December shed 0.68% to $1,333.50 an ounce on New York's Comex as of the time of writing, followed by silver futures, that edged down 0.58% to $22.660.
Still, most analysts predicted bullish sentiment for the commodity as they predict that Fed policymakers won't cut the central bank's $85-billion monthly asset-buying program until March 2014 as the world's number one economic recovery is still fragile.
The almost-five-year-long unprecedented 'easy money' era has helped gold, as the metal soared more than 70% since December 2008. The Fed launched its first round of quantitative easing (QE) in late November 2008.
Shutdown impact
Tuesday's sluggish non-farm payroll data went hand-in-hand with previous incentives suggesting that the financial world won't see the tapering as soon as previously believed. The recent US government reopening left economists counting the cost of the partial shutdown of the economy, with the Fed itself warning about the impact in its latest Beige Book.
Tuesday saw more concrete estimates, as Jason Furman, on President Barrack Obama's Council of Economic Advisers, said the partial shutdown trimmed the estimated fourth-quarter economic growth by 0.25% and cost the world’s biggest economy 120,000 jobs in October.
A separate report from the National Retail Federation (NRF) together with Prosper Insights & Analytics forecast on the same day that effects of the government shutdown may linger longer as the average US consumer plans to burn less cash during the ongoing holiday season.
Tapering postponed
Added to that, US budget issues remained unresolved with the recent deal simply being a '2-3-4 delay' as the budget needs to be re-negotiated within two months, the government will be re-opened and funded for just three months and the debt ceiling issue pushed back for four months, suggesting more political drama from Washington on the horizon.
Such a stance was confirmed by numerous Fed officials with the latest, Chicago Fed President Charles Evans, saying on Monday that the recent fiscal drama was likely to postpone the tapering. Evans is one of the most vocal proponents of the central bank's 'easy money' policy.
The next Federal Open Market Committee meeting is scheduled for October 29-30.
Gold ETF
Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, swelled 0.8% to 878.32 metric tons on Tuesday, the first increase since September 19.
In general, gold exchange traded funds (ETFs) continued to witness outflows in the third quarter but the downfall in holdings was much more moderate when compared to the previous quarter. Gold ETFs witnessed outflows of $3.2 billion compared to record outflows $19.6 billion in the second quarter this year.
"However, as tactically there are more attractive commodities and assets based on our macro view, it also seems unlikely – barring a severe political or financial shock – that demand for gold ETPs will rise sharply in the near term either. Therefore, our base case scenario is relatively balanced gold ETPs flows in the near term. Longer term, given still substantial unresolved debt issues across the developed world, we expect that gold ETP demand will revive,” an ETFS report cited by the media said on Wednesday.
