Limited upside seen for gold if Fed sticks to plan

Gold prices rose late last week in response to weak US jobs figures, but analysts see only limited upside ahead as the US Federal Reserve is still expected to start reducing its stimulus this year.

The afternoon fixing on Friday in London was $1,773.25 an ounce, compared with $1,757.05 a week earlier. Thai selling prices were quoted at 28,200 baht per baht-weight (15.2 grammes), up 200 baht from the previous week.

US employers added just 194,000 jobs in September, well below expectations. But upward revisions to data from earlier months mean the economy has now made up for half of the jobs deficit it faced at the end of last year.

This drove expectations that the Fed will “continue on its path of wanting to taper monetary policy sooner, rather than later”, said Jim Wyckoff, senior analyst at Kitco Metals.

The gold market now seems to expect a tapering announcement from the Fed at some point this year, said Standard Chartered analyst Suki Cooper.

“However, the downside appears well-supported, given the demand response from the physical market.”

In the physical market, gold in India was quoted at a discount for the first time in over two months as a rise in local prices curbed demand, while buying in China was expected to pick up after the Golden Week holiday.

Dealers in India offered discounts of up to $2 an ounce over official domestic prices, compared with a premium of $4 a week earlier.

“Demand is subdued from jewellers since prices are going up. Jewellers and dealers are waiting for a correction,” said Mukesh Kothari of the Mumbai bullion dealer RiddiSiddhi Bullions.

Demand in top consumer China was expected to rise after the long holiday as prices softened.

“People are hesitating to purchase as they prefer to wait and buy at lower levels. The dollar is also very strong,” said Peter Fung of Wing Fung Precious Metals in Hong Kong.