Gold lower on profit-taking speculations; weak India demand
New York (Oct 25) Gold futures dropped on Friday, trimming the gains booked in the past two weeks as traders shortened their positions in profit-taking speculations. Moreover, the gold saw signs of reduced demand in the precious metal's biggest market last year, India.
Still, the metal was set to book its second weekly gain amid market consensus that the US Federal Reserve (Fed) will keep its virtual printing machines switched on at the current level for longer than expected. Most analysts predict that the unprecedented $85-billion-a-month stimulus may be injected to the markets at least until March 2014.
Gold contracts for December fell as much as 0.60% to $1,342.30 an ounce on New York's Comex as of the time of writing, followed by silver futures, which dropped 1.70% to $22.435 an ounce.
Gold futures almost hit a one-month high in the previous session, as they rose to $1,352.06 an ounce, the highest level since September 30. The second weekly gain would be the metal's best run since late August.
Tapering delay
The Fed almost certainly will not scale back its monetary stimulus at its December meeting, according to the majority of analysts, due to the impact of the recent partial government shutdown as well as some sluggish macro data.
The US labor sector showed broadly disappointing non-farm payroll figures on Tuesday while Jason Furman, President Barack Obama's chief economic adviser estimated that the 16-day-long budget impasse may have cost the world's number one economy 0.25 percentage points from its fourth-quarter gross domestic product growth rate and about 120,000 jobs in October.
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.
India demand
India, the world's biggest gold consumer last year, pressed on the metal's imports this year to fight with a staggering current-account deficit, which hit all-time highs. Logically, a decline in gold demand followed, from which the country has not yet recovered, a recent note from HSBC suggested.
“Further gains may be difficult to achieve in the near term,” analyst at HSBC Securities James Steel wrote in a note on Friday, calling the demand for imported gold "still weak."
Imports of gold and silver tumbled to $800 million in September from $4.6 billion a year earlier, the country's Commerce Ministry said last week.
Still, the ongoing festive season - traditionally high-on-demand - has forced Indian gold buyers to pay big margins over its international price to ensure immediate delivery. Bulk consumers such as jewelers are paying up to $150 an ounce over the international price, local traders said to the Financial Times, compared with about $3 a year ago and $50 only a couple of weeks ago.
