Gold prices ended lower on Friday, as a broadly stronger U.S. dollar reduced the appeal of the precious metal while investors continued to readjust positions after Federal Reserve Chairman Ben Bernanke diminished expectations for more U.S. monetary easing earlier in the week.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery settled at USD1,713.35 a troy ounce by close of trade on Friday, retreating 3.43% over the week, the largest weekly drop since mid-December.
Gold futures were likely to find support at USD1,689.95 a troy ounce, the low from February 29 and short-term resistance at USD1,726.95, the high from March 1.
Gold’s losses on Friday came as the U.S. dollar rallied against its major counterparts, as investors shunned riskier assets amid fresh concerns over the debt crisis in the euro zone.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, rose 0.82% to settle the week at 79.48, the highest since February 17. On the week, the index climbed 1.32%.
Meanwhile, gold traders continued to rebalance their portfolios after Federal Reserve Chairman Ben Bernanke dampened expectations for a third round of monetary easing in testimony to Congress on Wednesday.
Fed Chair Bernanke acknowledged the recent improvement in the labor market and said that higher oil prices could push up inflation.
Prices plunged almost 5% following Bernanke’s speech, or nearly USD80 per ounce, its largest one-day loss since December 2008, as traders unwound long positions fuelled by expectations a third round of bond-buying was imminent.
Technical selling also pressured gold after it failed to sustain gains above the USD1,790-an-ounce-level and break through key resistance at USD1,800.
Losses accelerated once prices dropped below USD1,700 an ounce, triggering fresh sell orders from hedge funds and large institutional investors and pushing down prices to as low as USD1,686 an ounce, the lowest since January 25.
Further weighing on the metal, market participants noted a large sell order on the Comex, said to have been 1 million ounces, or 31 tonnes, prompted by the Bernanke testimony.
Bernanke's remarks hit gold particularly hard because heavy bullish bets had been positioned leading up to Bernanke’s testimony and after the European Central Bank's second three-year long-term refinancing operation.
Gold prices rallied in recent weeks, boosted by growing expectations for further monetary easing measures from global central banks. Despite this week's pullback, the metal is still 9% higher this year after the Fed said in January it would keep U.S. interest rates near zero until at least 2014.
Earlier Wednesday, gold prices spiked to a three-month high of USD1,792.15 after the European Central Bank allotted EUR529.5 billion in loans to 800 lenders in its second long-term refinancing operation.
Under the operation, banks receive three-year loans in return for collateral at a rate fixed to the ECB's refinance rate of 1%. Together with the first auction, the ECB has now injected EUR1 trillion of 3-year funds into the system.
Gold can benefit from such an environment of easy money because of expectations that ample liquidity would put a damper on the value of paper currencies and boost inflation.
In the near-term, global financial service provider HSBC Holdings sees further downside to gold prices, citing the metal’s inability to clear USD1,800 an ounce and the paucity of emerging-market buying in recent weeks.
In the longer term, however, the bank expects prices to remain well-supported “even without further easing, as monetary policy is still highly accommodative.”
Elsewhere on the Comex, silver for May delivery settled USD34.81 a troy ounce by close of trade on Friday, falling 1.95% on the week in volatile price swings.
Silver prices rallied nearly 4% on Tuesday to hit the highest level since mid-September, after prices broke through a key resistance level close to USD35.73 a troy ounce.
Futures gave back those gains and more on Wednesday, plunging almost 7%, weighed down by the Bernanke speech. Despite the sharp drop, futures are still up almost 25% since the start of 2012.
Meanwhile, copper for May delivery rose 1.2% over the week to settle at USD3.906 a pound.
In the week ahead, investors will be looking ahead to Friday’s data on U.S. non-farm payrolls, to gauge the strength of the country’s economic recovery. Market participants will also be continuing to watch developments in Europe, ahead of an interest rate announcement by the ECB on Thursday.Read More
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