Morning: Gold Reversed Losses, More Focus on Fed’s Stimulus

U.S. Gold

(Reuters) – On Monday, gold reverses earlier losses as buyers arose following a sell-off generated by renewed fears that the U.S. Federal Reserve will start reducing its bullion-friendly stimulus measures before the end of the year.

Gold dropped nearly 1% earlier in the session, adding to the 3% drop on Friday. Silver also improved sharply from early trade following strong numbers in an initial survey of China’s factory sector enhanced the metal, which has industrial uses, supporting gold.

One precious metals trader in Sydney said “A lot of stops are being targeted right now,” and also added “Trading today has been as volatile and choppy as it could be in the Asian time zone.”

Another trader in Hong Kong said stops were generated after gold prices slowly improved to Friday’s closing price from a decline in early trade.

Spot gold had increased 0.05% to reach $1,325.71 an ounce at 0703 GMT, after dropping to as low as $1,313.65. Spot gold lost near 3% on Friday.

U.S. gold futures decreased 1.4%, while silver futures also fell 2.9% before trimming some losses.

December Comex gold earlier was at $1326.10.

The London A.M. fix is $1,321.75.

Following a surprising decision by the Fed last week to stick to its bond-buying stimulus, on Friday St. Louis Fed President James Bullard said that the U.S. central bank might still scale back the stimulus at an October meeting data should show a stronger economy.

Gold, is highly sensitive to the fate of the stimulus which driven it to record highs in 2011, the yellow metal also frequently seen as an inflation-hedge and a safe-haven investment,

A Reuters poll of economists indicated that several estimated the Fed to reduce bond purchases only in December. 42 of 61 economists said the Fed would now reduce in December, the final notice for policymakers to follow through on Fed Chairman Ben Bernanke’s earlier guidance.

Chen Min, precious metals analyst at Jinrui Futures in Shenzhen said “The Fed will not reduce immediately considering they downgraded their views about the economy in the (September) meeting,” he also added “The next possible window is in December.”

Money managers and hedge funds reduced bullish bets in futures and options of U.S. gold and silver markets. Holdings in SPDR Gold Trust, the largest backed ETF, dropped nearly 2 tonnes.

China, one of the major consumers, has shown weak buying, which was back from the mid-autumn festival holiday, also one of conditions that weighed on prices earlier in the day.

A dealer said “We can see some buying interest from them only if prices fall below $1,300 and stay above $1,250,”