Gold Prices Slip on Uncertainty Over Fed Policy

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By Jan Harvey

LONDON -- Gold edged lower on Friday, hurt by a recovery in stock markets and gains in the dollar, as dealers awaited clearer direction on the Federal Reserve's monetary policy.

European shares climbed on Friday and the dollar index rose 0.2 percent as robust U.S. economic data lifted assets seen as higher risk, outweighing persistent uncertainty over the durability of Fed stimulus.

The Fed's next policy meeting takes place early next week. An array of firmer than expected U.S. data of late has fueled speculation it could be on track to rein in its $85 billion monthly bond-buying program.

Spot gold was down 0.4 percent at $1,379.69 an ounce at 9:56 a.m. GMT (5:56 a.m. ET), while U.S. gold futures for August delivery were down $1.60 at $1,379.20. Gold is little changed since last Friday, and has ended the last four weeks in a $10 range.
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"This just reflects a lack of conviction about where the market is going to go next," Standard Chartered analyst Daniel Smith said. "The constant outflows from the exchange-traded funds are bad news, and that hasn't been strongly offset yet by the net managed money positions, although they are turning up."

"There's still an ambiguous picture from investors. People are worried about the withdrawal of quantitative easing, particularly given that the data out yesterday was reasonably good from a U.S. perspective," he added. "There are quite a few negatives at this point. We're pretty neutral on the market."

Ultra-loose monetary policy, especially in the United States, has been a key driver of higher gold prices in recent years. Uncertainty over how long this will last has made traders wary of chasing prices higher after their April crash.

The largest gold-backed exchange-traded fund, New York's SPDR Gold Trust said its holdings declined by another 6.3 tonnes on Thursday, bringing its total outflow for the year to nearly 350 tonnes.

India Demand Soft

Demand in India, the world's largest gold consumer, was muted after the wedding and festival season came to an end, traders said. It is due to restart in August.

Silver was down 0.5 percent at $21.69 an ounce, tracking gold. Spot platinum was down 0.5 percent at $1,443.74 an ounce, while spot palladium was down 0.7 percent at $724.75 an ounce.

Platinum and palladium are set for their biggest weekly falls since the mid-April crash in precious metals prices as concerns about industrial action in major producer South Africa eased a touch and after key technical levels were breached.

The NewGold Platinum ETF launched by Absa Capital in late April, which already accounts for around 20 percent of total global platinum ETF holdings, said its holdings rose by nearly 16,000 ounces or 4.3 percent on Thursday.

"The rapid growth of this fund has been astounding as investors, recognizing the issues facing platinum supply, clearly seek to gain exposure to the metal in preference to the equities, most of which have fared poorly over the same time period," Investec said in a note on Friday.

Gold Prices Slip on Uncertainty Over Fed Policy

What's involved: You can buy gold bars or coins from coin dealers across the country. Many coin dealers have online businesses that will ship gold directly to your home.

Pros: You have the gold in your possession, avoiding any risk of third-party misconduct that other methods of investing in gold entail. Some investors enjoy the coin-collecting aspect of gold bullion coins.

Cons: You'll pay a markup to the current spot price to buy physical gold and might have to accept a discount when you sell it back. Also, you have to find and pay for a safe place to store your gold.

What's involved: Some coin dealers offer pool accounts, which allow you to buy gold but arrange to have it stored with the dealer rather than taking delivery. At any time, you then have the option either to sell the gold back or arrange to have the dealer send you a physical coin or bar corresponding to your pool-account position.

Pros: You have all the benefits of owning gold, but the dealer remains responsible for its care. You avoid dealing with shipping and insurance costs and have the assurance that it's held in a secure facility. The premiums for buying and discounts for selling also tend to be smaller than with physical gold.

Cons: To take possession of the gold, you'll have to pay shipping costs and other fees. You also have to trust that the dealer running the pool account will take all necessary steps to protect it from theft or other dangers.

What's involved: Gold futures contracts allow you to buy the right to take delivery of gold at a specified future date. Futures contracts tend to track the changing spot price of gold, paying you profits when prices rise and losing money when they fall. Most futures investors sell back the contract before it expires, never taking delivery of the physical gold underlying the contract.

Pros: You get the potential financial benefits of owning gold without worrying about storing it. You also don't have to come up with the full value of the underlying gold, as futures contracts require only a small margin balance covering a fraction of the gold's total value.

Cons: Futures contracts are only available through specialized brokerage accounts, and there are commissions involved. Most futures contracts may provide too much exposure, as a standard contract corresponds to 100 ounces, worth about $140,000 at current prices. You may have that much in your portfolio to invest, but putting it all into gold futures could give you too much exposure to one commodity.
What's involved: Exchange-traded funds like SPDR Gold (GLD) own vast holdings of gold bullion. Each share of SPDR Gold has a value of just under a tenth of an ounce of gold, and those shares rise and fall with the price of gold bullion.

Pros: Gold ETFs take responsibility for storage and protection of the gold in their possession, saving you the hassle and cost of owning physical gold.

Cons: Although many gold ETFs own physical gold, some gold ETFs use derivatives rather than bullion to track changing gold prices. For those ETFs, you run the risk that the derivatives involved won't move in lockstep with gold prices, potentially causing you to miss out on a gold-price increase.
 

What's involved: Hundreds of public companies mine gold. When gold prices rise, they earn more for the gold they produce, tying their value to that of the yellow metal itself.

Pros: Unlike other investments, mining stocks can actually produce income. Some miners even pay dividends to shareholders.

Cons: Mining stocks don't always track the price of gold, as other factors such as labor disputes and production costs can cause miners to suffer financial difficulties even when gold prices are high. Lately, gold-mining stocks have had far worse returns than bullion due to rising costs and falling profit margins.

 

Each of these five ways to add gold to your portfolio has pros and cons. But if you see the value of having gold among your investments, they're all worth considering to give you the gold exposure you want.

 

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