Gold Prices Settle Lower
Gold prices slipped on Friday as metal’s inflation-hedge appeal took a beating after the U.S. consumer sentiment ticked higher in October, emphasizing the ongoing recovery in the U.S. economy and stoking fears that Federal Reserve might cut short its economy stimulating bond buying program, prompting profit booking while continued stalemate with regard to the euro zone crisis kept bullion investors on sidelines.
Earlier on Friday, a data provided by the U.S. Labor Department showed the purchasing price Index (PPI) rose marginally by 1.1% in September. The wholesale price index, which excludes food and energy prices also remained flat, pointing that core inflation was low, weighing on gold’s prices.
Also adding to gold’s woes is improving job market. Gold, which rallied after the Federal Reserve announced in its last FOMC that it will buy $40 billion worth bonds each month for indefinite period, lost its momentum in October as series of U.S. economic data pointed towards improving job market.
Bullion investors are worried now that Federal Reserve might end its QE3 much sooner than expected in the wake of improving labor market and strong consumer sentiment, which in turn would curtail the inflation outlook.
Earlier on Thursday, the U.S. Labor Department’s said that weekly jobless claims fell by 30,000 for week ended October 6, a lowest level since February 2008 even as unemployment level fell to 7.8%, lowest level in last four years. The U.S. non-farm payroll report and private sector job data, released earlier this month, also showed marked improvement in the labor market in September.
Commenting over improving U.S. economy and its impact on the bullion market, Phillip Streible, senior commodities broker at futures brokerage R.J. O’Brien said to Reuters, “We are starting to see some improvement in the U.S. economy, so the duration of a quantitative easing plan may not be as long as what was initially anticipated, People who buy gold as an inflation play are starting to step out of the market.”
Besides, gold’s failure to breach the key resistance level of $1,800 an ounce set off technical weakness. According to George Gero, vice president and precious metals strategist at RBC Capital Markets, gold is going through a consolidation period after having failed to break out of its recent $1,750-$1,800 range.
Spot gold slipped 0.7 percent to end the day at $1,755 an ounce while U.S. gold futures edged down $10.90 an ounce to close at $1,759.70 an ounce.
The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.74% lower at $170.05.
Meanwhile, the entire spotlight will shift to the euro zone next week when the head of states will gather for a meeting. Market participants will hope that the meeting throws more light on Spain’s stance with regard to the bailout and whether policy makers in the EU are prepared to give Greece more time for execute its deficit target.
In physical demand side, buying orders from one of the world’s biggest consumer, India was muted as softer Indian rupee made gold imports (which are prices in U.S dollars) expensive. However, it is expected that demand will soon pick up as festival season is just around the corner. The demand for physical gold in China fell as well. A data provided by Reuters showed that net gold flows from Hong Kong to China in August fell 26 percent compared to year earlier period. Holdings in gold backed exchange traded funds also recorded net outflows by Thursday, a first fall in two weeks; however, it was still close to record highs of 75.03 million ounces, a data provided by Reuters showed.
In some other precious metal markets, silver futures for December delivery fell 1.2% to settle at $33.67 an ounce. Platinum futures for January contract plunged 1.8% to close at $1,659.30 an ounce while palladium futures of December delivery edged down 1.8% to $639.05 an ounce.
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Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.
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