Gold gains, snapping six-session losing streak

By Saumya Vaishampayan and Carla Mozee, MarketWatch

NEW YORK (MarketWatch) — Gold futures gained modestly on Wednesday after six straight sessions of losses, as investors continued to wonder when the Federal Reserve would begin to scale back stimulus.

Gold for December delivery GCZ3 +0.20%  added $2.80, or 0.2%, to settle at $1,285.30 an ounce on the New York Mercantile Exchange.

AFP/Getty Images Enlarge Image

Gold snaps six-session losing streak.

The U.S. dollar fell broadly on Wednesday.

“Gold appears to be continuing its sensitivity to the link between Fed intentions and the vulnerability of the dollar,” said Jonathan Citrin, founder and executive chairman of Citrin Group, in emailed comments.

“As the global reserve currency declines due to curbed expectations of Fed tightening, the metal is becoming more attractive,” he said.

Cleveland Fed President Sandra Pianalto said the central bank could begin to slow its monthly asset purchases if the labor market continues to improve, without giving hints about timing. Investors have been watching for clues on when the Fed could begin to slow its monthly asset purchases of $85 billion, especially since its latest monetary-policy statement made no mention of a timeline. Stimulus from the Fed has been seen as a benefit for gold prices.

“Traders are watching the Fed and dollar under a microscope, while investors are all too happy to stay on the metals sideline,” said Citrin.

Adam Grimes, chief investment officer of Waverly Advisors, said gold futures could ultimately fall to the mid-$800 level, although such a decline is unlikely to be achieved in one selloff.

“We would expect to see a controlled, extended downtrend, which could take a year to play out,” said Grimes.

Metals action on Tuesday included a fall in December gold of $19.90, or 1.5%, with losses accelerating after two Federal Reserve officials said they expect the central bank to reduce its asset purchases this year.

Mostly bullish recent U.S. data have “deterred investors from creating new longs,” or bets for higher gold prices, VTB Capital analyst Andrey Kryuchenkov told clients on Tuesday. 

There’s also been liquidation on exchange-traded funds’ long positions, “with only opportunistic buying on the lows in the past week, while physical flows still exert a subdued influence on prices,” he said.

Chicago Fed Bank President Charles Evans said Tuesday the Fed is “quite likely” to begin slowing the pace of monthly bond buying by year’s end. Separately, Atlanta Fed Bank President Dennis Lockhart said tapering of monetary stimulus, or quantitative easing, could be announced at any of this year’s remaining policy meetings.

But the July employment report last week showing the economy added only 162,000 jobs also created uncertainty about the tapering time frame, as weakness in the labor market suggested to many that the economy remains in need of monetary aid from the Fed. Even so, among outside economists, Goldman Sachs said it expects a move in September.

The September meeting is “still looking like a good starting place” for tapering, said Kryuchenkov. “In any case, the upside in gold will be particularly limited if numbers continue to improve, while [quantitative-easing] uncertainty will fuel further jittery trading ahead of the autumn.”

Elsewhere in the metals complex Wednesday, September silver SIU3 +1.01%  shed 1 cents to settle at $19.51 an ounce and October platinum PLV3 +0.65%  added $10.50, or 0.7%, to $1,438.30 an ounce.

September copper HGU3 +2.36%  ended unchanged at $3.17 a pound, and September palladium PAU3 +0.66%  gained 35 cents, or 0.1%, to settle at $723.15 an ounce.

Saumya Vaishampayan is a MarketWatch reporter based in New York. You can find her on Twitter @saumvaish. Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.

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