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Gold eases towards $1,650/oz after U.S. data

LONDON - Gold prices eased on Wednesday along with the euro after a downbeat survey of euro zone manufacturing activity contrasted with a stronger U.S. reading, though the metal pared losses after soft U.S. jobs report pulled the dollar from highs.

Speculation the Federal Reserve is set to unleash another wave of monetary easing faded, adding further pressure to gold, after comments from several Fed officials reinforced the notion they are happy to stand pat on policy.

Talk that further easing could be imminent, which would potentially undermine the dollar and keep interest rates low, has added significant support to gold this year.

Spot gold was down 0.5 percent at $1,653.71 an ounce at 1312 GMT, off a low of $1,648.09, while U.S. gold futures for June delivery were down $8.20 an ounce at $1,654.20.

Data released on Wednesday showed U.S. private employers added a far fewer than expected 119,000 jobs in April, the smallest gain since September 2011. The dollar pared gains against the euro after the reading, helping lift gold from lows.

“ADP private sector employment (data) in the US (is) usually seen as a good proxy to non-farm payrolls on Friday,” VTB Capital analyst Andrey Kryuchenkov said. A weak payrolls report could reignite speculation for more monetary stimulus, weighing on the dollar, he said.

A spate of more positive readings on the U.S. economy recently has cut speculation the United States will extend quantitative easing to stimulate growth, which helped lift gold prices earlier in the year.

BNP Paribas cited waning expectations that quantitative easing is imminent in cutting its gold and silver forecasts for this year, by $140 to 1,715 an ounce and by $4.40 to $33.10 an ounce respectively.

“(Our economists’) central scenario is now for further Fed monetary accommodation to be implemented only in the fourth quarter instead of June,” it said.

“This change has significant implications for our gold price forecasts (and by extension for our silver price forecasts), given gold’s tight positive relation with the level of market liquidity.”

PHYSICAL DEMAND SOFT

Gold prices have been held in check in the last month by a dearth of physical demand, with buyers in key jewellery consumer India deterred by high prices and a weak rupee, exchange-traded funds reporting outflows and coin sales easing.

Some appetite returned for gold coins in May, with the U.S. Mint reporting sales of 10,000 ounces on the first day of the month, half the total sold in the whole of April. That was its worst month for gold coin sales since June 2008.

Holdings of the gold-backed exchange-traded funds monitored by Reuters, which issue securities backed by physical gold and which proved a popular investment during the financial crisis, fell 194,000 ounces in April and edged below 70 million ounces on Tuesday for the first time since Feb. 2.

“As much as the remarkable resilience of gold ETF investment is testament to the ongoing positive sentiment among longer-term players, in our view there’s no doubt that the buying has dried up,” UBS said in a note on Wednesday.

“In the current lacklustre environment, the market needs more than just resilience - significant ETF buying will have to resume in order to breathe some life back into gold,” it added. “Absent that resuscitating factor, we think gold is likely to continue its aimless wander.”

Silver was down 1.4 percent at $30.50 an ounce. Its underperformance lifted the gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, to 3-1/2 month highs.

Spot platinum was down 0.5 percent at $1,558.20 an ounce, while palladium was down 1.4 percent at $666.67.