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Gold set for first 3-week drop in over a year

New York, October 27, 2012

Spot gold prices eked out small gains on Friday after data showed U.S. economic growth picked up in the third quarter, but the metal was heading for its first three-week loss in more than a year on uncertainty over the future of the U.S. Federal Reserve's monetary stimulus.

Bullion reversed early losses after the U.S. Commerce Department said gross domestic product expanded at a better-than-expected 2 per cent annual rate, driven by a late burst of consumer spending.

Analysts said, however, that uncertainty over global economic recovery and questions on the future of U.S. monetary policy that has been ultra-loose under Fed Chairman Ben Bernanke could dent gold's appeal as an inflation hedge.

"I don't believe gold is able to rally off of that (GDP) data for now. Gold is a momentum asset and its momentum is not there right now," said Jeffrey Sica, chief investment officer at SICA Wealth, which manages more than $1 billion in assets.

Spot gold edged up 0.02 per cent at $1,712.23 an ounce by 2:17 p.m. EDT (1817 GMT).

Spot bullion was set for a weekly drop of 0.5 per cent, which would mark its first three-week consecutive loss in more than a year. Gold posted a four-week decline after a rally to a record above $1,920 an ounce in September 2011.

U.S. Comex gold futures for December delivery settled 0.06 per cent lower at $1,711.9 an ounce, with trading volume on track to finish below its 30-day average, preliminary Reuters data showed.

Traders said the 0.7 per cent decline in the December price this week stemmed partly from concerns over a report that Bernanke has told close friends that he probably will not stand for a third term at the central bank even if President Barack Obama wins the Nov. 6 election.

"Without Bernanke, monetary stimulus from the Federal Reserve could be greatly reduced, and that will weigh on the price of gold," Sica said.

Gold's outlook hinges on uncertainty related to the U.S. election and the so-called "fiscal cliff", a series of automatic spending cuts and tax increases in 2012 if Congress fails to reach a deficit-reduction deal by the end of the year.

On charts, gold has come under technical pressure after it several times ran near formidable resistance at $1,800, which it has not broken since November 2011, and failed each time, said Adam Sarhan, CEO of Sarhan Capital.

Silver was down 0.09 per cent at $32.04 an ounce.

Momentum slows

Bullion rallied to an 11-month peak above $1,795 an ounce in early October after the Fed's latest program of purchasing mortgage-backed debt stirred inflation worries.

Momentum has since stalled, with weak global economic data helping send prices below $1,700 this week, when U.S. durable goods data showed the first cutbacks in investment in more than a year by cautious businesses.

Year-to-date, gold is up nearly 10 per cent, on track to gain for a 12th consecutive year. Bullion's gains in the last several years have largely been powered by economic uncertainty related to the Fed's bond-buying to stimulate growth.

Platinum group metals are on track to fall more than 3 per cent this week as economic worries and easing supply fears from top producer South Africa triggered heavy selling.

Platinum dropped 1.38 per cent to $1,546.25 an ounce and palladium fell 1.28 per cent to $594.0 an ounce. – Reuters




Tags: Gold | New York | US economy | Platinum | Comex |

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