Gold prices advanced for second straight session on Wednesday after the U.S. GDP data showed unexpected contraction putting an end to speculation that the Federal Reserve might cut its quantitative easing or QE3 much sooner than expected while high volume trading due to COMEX futures expirations ahead of first notice day on Friday also boosted prices.
Later during the day a policy statement from the Federal Reserve, which was in line with expectations, showed that the Fed was in no hurry to put a halt on its economic stimulating measures, (monthly $85 billion worth bond purchase program), lifting metal’s inflation hedge appeal.
“ (The Fed’s policy statement) is a good news for gold investors and will provide support to the gold price and will no doubt help today’s earlier price boost,” said Jan Skoyles, head of research at The Real Asset Company, a precious-metals investment platform provider, according to MarketWatch.
Gold futures for February delivery gained $19.10 an ounce or 1.2% to settle at $1,679.90 while spot gold edging up 0.7% to trade near $1,675.61 an ounce having climbed as high as $1,682.90 following Fed’s policy statement.
A data provided by Reuters showed that the trading volume was nearly 25% above its 250-day-moving-average.
The SPDR Gold Trust (ETF) (NYSE: GLD
) ended the day 0.75% higher at $162.19.
Earlier on Wednesday, a data release from the U.S. Commerce Department showed that economy contracted by 0.1% in fourth quarter YOY even as economists were expecting economic activities to expand by 1%, underpinning the fact that world’s largest economy was not yet out of the woods. In the third quarter GDP rose 3.1% on annualized rate basis.
The weaker than expected GDP data weighed on equities as investors sought safety in safe haven bets such as gold.
“A weak GDP report helped prices this morning, and seasonal jewelry demand in Asia is helping, along with some evidence of central bank participation, especially Russia,” said Richard Hastings, a macro strategist at Global Hunter Securities in a note to investors.
However, the gains in the bullion market are likely to remain capped for the time being. This is because; bullion investors had already factored in before the policy statement was released on Wednesday that Federal Reserve will persist with its ongoing quantitative easing measures.
“The market had extended gains ahead of the Fed on the unexpected GDP number. Most of what's in the Fed statement has already been baked into the price, and that put a market susceptible for a correction back to the downside,” said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC in a note to clients.
Now in order to further scrutinize the state of the U.S. economy, bullion investors will keep an eye on the Labor Department ‘s monthly non-farms payroll report for January on Friday. Economists polled by Reuters are expecting steady hiring during January. On Wednesday, a data provided by ADP/Moody’s Analytics showed that the U.S. private sector added 192,000 new jobs in January while economists’ consensus estimates was for 165,000 additions.
Moving to some other precious metal markets, silver for March delivery jumped 99 cents an ounce or 3.2% to end the day at $32.18.
Platinum futures for April delivery edged up $10.40 an ounce or 0.6% to close at $1,689.30 while palladium futures for March delivery tacked higher $1.65 an ounce or 0.2% to settle at $751.40.
According to Reuters, Platinum refiner specialist Johnson Matthey PLC foresees no improvement in demand from Japan and Europe for its catalysts converter business during the new fiscal year as both economies is expected to remain stagnated in 2013 but it added that weaker demand in these regions will be offset somewhat by better prospects in North American region.