Gold Declines From Two-Month High as Investors Weigh Stimulus

Jan 27, 2014 3:17 am ET

Jan. 27 (Bloomberg) -- Gold retreated from the highest level in two months as some investors deemed the rally as excessive on speculation that the U.S. Federal Reserve will further reduce monetary stimulus at a policy meeting this week.

Bullion for immediate delivery fell 0.2 percent to $1,268.14 an ounce at 4:15 p.m. in Singapore, after rising as much as 0.8 percent to $1,279.61, the highest level since Nov. 18. The metal advanced for the fifth week last week in the longest rally since September 2012 as a selloff in emerging- market assets spurred demand for a haven.

Gold has rebounded from a six-month low on Dec. 31 as signs of increased physical demand in Asia countered expectations that Fed policy makers, who meet Jan. 28-29, will continue paring the central bank’s bond-buying program. In China, which probably overtook India as the biggest consumer last year, volumes for the benchmark contract on the Shanghai Gold Exchange exceeded the fourth quarter’s daily average of about 11,525 kilograms every day since Jan. 6.

“Those who worry about emerging markets want gold, and those who are optimistic about developed markets don’t want gold,” Xue Na, an analyst at Nanhua Futures Co., said from Hangzhou. “We continue to expect price swings going into the FOMC meeting this week.”

The Federal Open Market Committee decided in December to cut monthly bond buying as the economy improved, helping to snap gold’s 12-year bull run. The Fed will reduce asset purchases by $10 billion at each meeting to end the program this year, according to the median of forecasts by economists in a Bloomberg survey.

FOMC Meeting

While Austria’s Muenze Oesterreich AG mint is running 24 hours a day to keep up with demand for gold coins, holdings in exchange-traded products backed by bullion resumed a decline last week, contracting 0.6 percent to 1,739.01 metric tons, according to data compiled by Bloomberg.

“Gold is yet to see a follow through in terms of ETP flows last week,” Barclays Plc analysts including Suki Cooper wrote in a note today. “This lack of interest suggests to us that gold’s gains are likely to be short lived.”

Gold for April delivery advanced as much as 1.2 percent to $1,280.10 an ounce on the Comex in New York, the highest level since Nov. 18. The net-long position in gold climbed for a fourth week to 43,353 futures and options in the week ended Jan. 21, U.S. Commodity Futures Trading Commission data show.

Silver retreated 0.4 percent to $19.879 an ounce, extending the biggest weekly drop since the period to Dec. 6. Palladium traded 0.1 percent higher at $735.40 an ounce.

Platinum rose 0.6 percent to $1,436.63 an ounce. Wage talks between workers and Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc, resume today as strikes hurt output of the metal in South Africa, the largest producer.

--Editors: Ovais Subhani, Jake Lloyd-Smith