Gold rebounds above $1,200 an ounce despite Fed's worries

Gold futures were traded above the $1,200 an ounce threshold on Monday, rebounding from a three-year low of $1,180.57 an ounce seen on Friday, due to worries that the Fed may scale back its monetary stimulus.

London - Prices of gold traded up on Monday, markedly above the $1,200 an ounce mark, after crossing the threshold twice on Friday, driven by worries of the Federal Reserve's potential tapering of its bond purchase program.

Gold futures were trading 1.61% higher at $1,243.50 an ounce as of 5:27pm GMT, while silver hiked 1.1% to $19.685 an ounce as of the same time.

Last week, gold futures tumbled more than 7%, heading for the the worst quarterly performance in 93 years after plunging 25% so far in the second quarter.

After falling to a 3-year low of $1,180.57 an ounce last Friday, prices stabilized back above $1,200. Some technical analysis point to a fall to $1,055 an ounce in the near future.

Fed concerns prevail
Over the past three months, commodity markets have been shaken by worries about a possible trimming of the Fed bond-buying program, as the latest comments by some of the central bank's officials suggested that the era of the bank's cheap money is ending as the world's largest economy improves. This then pushes gold futures down. 

Last week, several Federal Open Market Committee (FOMC) members voiced their opinion that it was ready to taper the $85 billion per month pace of quantitative stimulus, provided the economy's trajectory follows the bank's projections this year.

Out of the wide range of Fed officials, Jeremy C. Stein, member of the Board of Governors of the FOMC, offered the most specific details about the tapering plans so far. In a speech on June 28 Stein suggested that the FOMC meeting in mid-September could be the moment when policymakers decide to taper the $85 billion stimulus.

"In making a decision in, say, September," Stein explained, adding that the FOMC would look at the achievements accumulated since the inception of the program and "will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting".

However, if the report from early September were to come out bad and be reaffirmed by further bad news in October and November, "this would suggest that the 7% unemployment goal is likely to be further away, and the remainder of the program would be extended accordingly," Stein added.

The first back-to-back rise in durable goods, soaring housing prices and solid consumer confidence numbers may represent the first signs for the move, persuading the policymakers that the economy is ready for the reduction.

However, a recent slowdown of price growth has caused a rift within the Federal Open Market Committee as the St Louis Fed chief James Bullard urged his colleagues to fight the low inflation figures to fulfill a part of the bank's dual mandate, price stability.

On a yearly basis, the Personal Consumption Expenditures (PCE) Price Index picked up to 1.0% in May after April's 0.7%, posting the weakest reading in three-and-a-half years. This compares to a 1.1% increase predicted by analysts. The PCE price index still remains well below the Fed's 2% objective.