Gold up in shadow of Fed taper debate

Gold traded higher while traders struggle for direction on uncertainty over the prospects the Federal Reserve will soon begin to scale back its asset-buying program. Overall market action remains swayed by the "will-they-taper or won't-they-taper" debate.

By William L. Watts
June 10, 2013, 12:25 p.m. EDT
Market Watch

NEW YORK (MarketWatch) — Gold futures edged higher in choppy trading Monday, with investors struggling for direction against a backdrop of uncertainty over the prospects the Federal Reserve will soon begin to scale back its asset-buying program.

Gold for August delivery GCQ3 +0.30% GCQ3 +0.30% rose $1.20 an ounce, or 0.1%, to trade at $1,384.20.

Overall market action remains swayed by the “will-they-taper or won’t-they-taper” debate, said Peter Grant, chief market analyst at USAGOLD. “I’m in the ‘they-won’t’ camp.”

The Federal Reserve’s aggressive monetary easing strategy has been viewed as a prime catalyst for gold’s sharp rally in recent years. Ideas that the Fed’s quantitative-easing approach — alongside aggressive easing by other major central banks — fostered fears of currency debasement, helping to prompt flows into gold.

Now that the Fed is seen pondering the timing of beginning to withdraw stimulus, gold and other precious metals have seen a significant setback from its recent high. Gold futures, which topped $1,900 an ounce in September 2011 and traded just below $1,800 as recently as October are down more than 17% year-to-date.

In Monday’s action, the yellow metal previously dipped as the dollar strengthened somewhat in the wake of the decision by S&P to revise its U.S. outlook. A stronger dollar can undercut commodities priced in the currency by making them more expensive for nondollar buyers.

Grant said strong underlying physical demand for gold appears to still be intact even as exchange-traded gold funds continue to see outflows.

Gold and other precious metals entered the week on the back foot after last week’s U.S. employment data.

“The gold and silver markets are still feeling the bearish effects of last Friday’s U.S. jobs report that came in slightly better than expected and bolstered ideas the Federal Reserve could put the brakes on its very easy money policies sooner rather than later,” said Jim Wyckoff, senior analyst at Kitco.com, in a note.

Also casting a cloud over gold futures, China over the weekend released a round of weaker-than-expected economic data that indicated growth slowed in May.

From a technical perspective, gold bears still have the upper hand, Wyckoff said, noting that the August contract remains in an eight-month downtrend on the daily bar chart. Choppy, sideways trade, however, suggests the market has put in a bottom, he said.

The next upside, near-term price objective for bulls is to produce a close above last week’s high at $1,423.30, he said, while bears are targeting a close below the May low at $1,338.

Other metals on Comex were mostly higher, with July silver SIN3 +1.14% up 18 cents, or 0.8%, at $21.92 an ounce.

September palladium PAU3 +1.31% rose $7.80, or 1%, to $769 an ounce. July platinum PLN3 +0.37% traded at $1,508 an ounce, up $5.40.

Copper for July delivery HGN3 -1.04% dropped 4 cents a pound to $3.23.

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