Gold clouded by US stimulus doubts; short-covering cushions losses

Tags: Gold, Commodities
Gold was trading in a tight range on Monday as markets fretted over when the U.S. Federal Reserve will start to taper its economic stimulus and as stronger equities dented the metal's safe-haven appeal.

However, gold's success in holding its ground on Friday despite strong U.S. nonfarm payroll data shows expectations of a December tapering may have already been priced in. Short covering could also offer some support in the near-term as investors re-adjust their expectations.

Data from the Commodity Futures Trading Commission showed that hedge funds and money managers raised their bearish bets in U.S. gold futures and options close to a 7-1/2 year high in the week to December 3, another reason that short-covering rallies could emerge.

"We could expect a short-term recovery in gold prices as, in our view, the mood of the market is exaggerated regarding the macroeconomic situation in the U.S.," said Alexis Garatti, an economist at Haitong International Research in Hong Kong.

Garatti said he does not expect the Fed to begin tapering its $85 billion bond purchases this month.

Spot gold was up 0.1 percent to $1,229.79 an ounce by 0401 GMT. Most Asian share markets rose, energised by a potent cocktail of upbeat Chinese trade data, a weaker yen and a firm finish on Wall Street.

Gold prices have fallen about 27 percent this year amid a shift in investor money to equities, and improving U.S. economy.

Markets are in data-watch mode to figure out how soon the Fed could begin cutting back its stimulus measures, which have supported bullion in its role as a hedge against inflation.

Haitong's Garatti, who expects a tapering only in 2014, said gold prices will trade in a wide $1,200-$1,400 range next year, with fluctuations caused by data flow.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 3 tonnes to 835.71 tonnes on Friday - the fund's lowest since early 2009.

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