Gold Futures Post Longest Rally Since 2012 on Yellen Remarks

Feb 11, 2014 3:53 pm ET

Feb. 11 (Bloomberg) -- Gold capped the longest rally since August 2012 as Federal Reserve Chairman Janet Yellen said more work is needed to restore the labor market, signaling monetary policy will boost demand for alternative assets.

While economic growth has picked up, “the recovery in the labor market is far from complete,” Yellen said in testimony to the House Financial Services Committee during her first public remarks as the central-bank head. Investors shunned gold in 2013, sending prices lower for the first time since 2000, partly as the outlook for less monetary easing signaled tame inflation.

Turmoil in emerging markets drove gold 7.3 percent higher in 2014, after a 28 percent drop last year that was the biggest since 1981. In January, U.S. payrolls rose less than forecast, while the jobless rate unexpectedly fell, the government said Feb. 7. Yellen pledged to scale back the Fed’s debt purchases through “measured steps.”

“Acknowledgment by Yellen that more needs to be done to restore the labor market is helping gold,” Frances Hudson, a strategist at Standard Life in Edinburgh, which oversees $294 billion, said in a telephone interview. “While she said that tapering will continue, she made it clear that it’s not on any pre-set course.”

Gold futures for April delivery advanced 1.2 percent to settle at $1,289.80 an ounce at 1:43 p.m. on the Comex in New York, after reaching $1,294.40, the highest since Nov. 8. Prices rose for a fifth day, the longest winning streak since Aug. 21, 2012.

The Fed reduced its monthly bond purchases to $65 billion from $85 billion during its last two meetings, citing signs the labor market is recovering.

12-Year Rally

Gold surged more than 500 percent in the 12 straight years of gains through 2012 as the dollar weakened. The rally accelerated from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases and held borrowing costs at a record low in a bid to revive growth amid a U.S. recession. Bullion reached a record $1,923.70 in September 2011.

In January, the 113,000 gain in hiring fell short of the 180,000 advance that was the median forecast of economists surveyed by Bloomberg.

A “notable change in the outlook” for the economy would prompt policy makers to slow the pace of tapering, Yellen said. Her comments come after European Central Bank President Mario Draghi, who said Feb. 6 that the bank may take more accommodative action if money-market turbulence resumes. This month, gold rose 4 percent, while the MSCI All-Country World Index of shares climbed 2.1 percent.

‘Energized’ Markets

“Draghi’s comments were perceived as dovish, and we saw gold and equities energized from that,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “People are still looking at the last U.S. employment data to understand if it was one-off incident, or the economy is actually slowing.”

Gold fell into a bear market in April after some investors lost faith in the metal as a store of value. The declines helped spur physical demand. Sales of American Eagle gold coins by the U.S. Mint rose 63 percent in January to the highest since April. In 2013, Chinese consumption surged 41 percent from a year earlier to a record 1,176.4 metric tons, according to data from the China Gold Association yesterday.

While climbing physical demand “is supportive, it cannot really determine the direction of prices,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets, said in a telephone interview.

Morgan, Goldman

Volatility in financial markets that erased about $1.4 trillion from the value of global equities this year doesn’t yet “pose a substantial risk to the U.S. economic outlook,” Yellen said.

For gold investors, there’s “more pain to come” after last year’s slump, Morgan Stanley analysts Peter Richardson and Joel Crane wrote in a report Jan. 22. The bank cut its 2014 target 12 percent to $1,160 an ounce. Goldman Sachs Group Inc. sees prices at $1,050 in the next 12 months, the bank said in a Jan. 12 report.

Bullion held in global exchange-traded products slumped 33 percent in the past year, wiping $66.3 billion from the value of the assets.

“People have been reassessing global growth, and this year we have seen some money flow into gold,” Krosby said. “It’s too early to say that it’s a turning point.”

Silver futures for delivery in March climbed 0.2 percent to $20.153 an ounce. Prices climbed for seven sessions, the longest rally since August.

On the New York Mercantile Exchange, platinum futures for April delivery increased 0.1 percent to $1,387.80 an ounce, the third straight advance. Palladium futures for delivery in March fell 0.1 percent to $716.35 an ounce.

--With assistance from Phoebe Sedgman in Melbourne, Nicholas Larkin in London and Glenys Sim in Singapore. Editors: Millie Munshi, Joe Richter