Gold spot price at near standstill ahead of US labour market data

The spot price of gold yesterday fell to $1,218 following the release of the US ADP Non-Farm Employment Change and FOMC Minutes. The ADP indicator showed that the private sector created 238,000 new job positions, up from the expected 200,000 and the previous 229,000.

The US Federal Reserve announced on 18 December the beginning of the QE taper, which starts this month with an initial reduction in monthly bond purchases to $75 billion from $85 billion a month.

Minutes of the 17-18 December meeting revealed that the FOMC thought that the stimulus programme had become less effective and showed that the central bank was still concerned over future risks to financial stability.

HSBC Securities analyst James Steel writes in a note that the FOMC report “undermined gold as the release may have increased expectations that the Fed may announce further ‘tapering’ at the subsequent meetings”.

He adds that “gold is likely to remain stuck in sideways trading at least in the near term until the release of the December nonfarm payrolls data”.

Fed chairman Ben Bernanke, who will be succeeded by Janet Yellen at the end of this month, said in a speech on 3 January that the US economy may grow faster than expected, after saying in December that the Fed will “continue to do probably at each meeting a measured reduction” in the rate of bond purchases.

Thus far today, gold has been trading sluggishly within the range $1,224 to $1,228 after a two day losing streak. The US central bank’s minutes raisied expectations for further cuts in its monthly bond purchasing programme this year, and has curbed safe-haven demand.

OCBC Bank analyst Barnabas Gan says that “the main factor for gold this year is how the Fed is going to go forward with its QE tapering”. He adds that “the outlook for the US economy seems favourable, and gold being a dollar denominated commodity will be sensitive to dollar strength should the tapering continue”.

Gan also notes that there was a downside risk for gold price to fall to $1,150 an ounce.

Traders today will be closely watching the US Unemployment Insurance Initial Claims for the week ended 3 January. Analysts expect a decrease to 335,000 from the 339,000 announced last week. Tomorrow sees the release of the key US Non-Farm Payrolls which will provide market participants with more evidence as to the health of the US economy.

It was reported yesterday that holdings in the world's biggest gold-backed ETF, SPDR Gold Trust, decreased by 1.5 tonnes to hit its lowest level in five years, at 793.12 tonnes. Traders expect demand for physical gold to pick up ahead of the Chinese New Year on 31 January, although premiums on the Shanghai Gold Exchange are currently steady at $17 an ounce.