Forexpros – Gold futures ended Friday’s session modestly higher, recovering from earlier losses which dragged the precious metal to a one-week low after Federal Reserve Chairman Ben Bernanke failed to give indications of further stimulus for the U.S. economy.
Gold’s gains accelerated towards the end of Friday’s U.S. session as uncertainty over an upcoming rescue plan for Spain’s troubled banking sector encouraged some safe-haven buying ahead of the weekend.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery settled at USD1,594.35 a troy ounce by close of trade on Friday.
Earlier in the day, prices hit USD1,559.35 a troy ounce, the lowest since June 1. Prices rose to USD1,642.15 a troy ounce on June 6, the highest since May 7.
Despite Friday’s mild gains, gold futures declined 1.47% on the week, the biggest weekly loss in four weeks.
Gold futures were likely to find support at USD1,546.35 a troy ounce, the low from June 1 and resistance at USD1,642.15, the high from June 6.
Gold prices plunged more than 2% on Thursday after Federal Reserve Chairman Ben Bernanke warned that the U.S. economy faced “significant risks” arising from the crisis in Europe, but refrained from indicating that the central bank was prepared to implement any fresh stimulus measures.
In testimony to a congressional committee in Washington, Bernanke said that the Fed remained “prepared to take action” to protect the U.S. economy and financial system if stresses on the financial system escalate, but stopped short of indicating what these actions might be.
The lack of an immediate easing announcement prompted investors to unwind bullish bets on a third round of quantitative easing. The precious metal rallied more than 4% on June 1 on expectations for further easing after last Friday’s dismal U.S. jobs report.
Gold traders will now turn their attention to the Fed’s Open Market Committee meeting, scheduled for June 19 and 20 for clues as to the likelihood of a fresh round of monetary easing, which could potentially hurt the U.S. dollar and support gold.
The bearish momentum carried over to Friday’s session, with the precious metal falling more than 1% to a one-week low before regaining ground as some bargain buying kicked in from traders reluctant to bet that prices would fall further.
Some safe-haven buying ahead of the weekend further supported the yellow metal after sources told Reuters Spain is expected to request European aid for its troubled banks at the weekend.
Rating’s agency Fitch cut Spain’s credit rating by three notches to triple-B on Friday, and indicated that further cuts could still be made as the country struggles to stabilize its fragile banking system.
The downgrade came as senior European Union officials prepared to discuss options for financial aid to Madrid in a telephone conference on Saturday morning.
Concerns about Spain’s banks have grown since Bankia, the country’s fourth-largest lender, said last month it needed EUR19 billion in state aid to shore itself up against bad loans.
Earlier in the week, European Central Bank head Mario Draghi disappointed markets hoping for fresh stimulus measures in order to calm investor nerves over the escalating crisis in the euro zone.
Draghi said the bank would extend its policy of lending to banks until mid-January 2013 but didn’t announce any new three-year lending operations. The ECB left euro zone interest rates unchanged at 1.0%.
Gold prices found only mild support from a surprise rate cut by China’s central bank on Thursday, the first since the 2008 global financial crisis. Some market participants took the rate cut as a sign that the world’s second largest economy may be slowing more than previously thought.
Elsewhere on the Comex, silver for July delivery settled at USD28.45 a troy ounce by close of trade on Friday, gaining a modest 0.42% on the week.
Meanwhile, copper for July delivery rose 0.87% over the week to settle at USD3.317 a pound. Prices fell 1.5% on Friday to hit a four-day low of USD3.264 a pound amid growing fears over a deeper-than-expected slow down in China.
Over the weekend, China released a flurry of economic reports that confirmed the world’s second largest economy was in fact slowing more rapidly than analysts had projected.
China’s industrial production grew 9.6% in May from a year earlier, versus 9.3% growth in April, the nation’s Statistics Bureau said. The result missed expectations for a 9.9% rise.
On the inflation front, consumer and wholesale price gains eased more than expected. The May consumer price index rose 3%, cooling from a rise of 3.4% in April, while the producer price index fell 1.4%.
The data compared to forecasts for a 3.2% increase for the CPI and a 1.1% contraction in wholesale prices.
Meanwhile, retail sales rose 13.8%, compared to a 14.1% gain in April, and weaker than analyst expectations for a 14.2% rise.
China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.
Copper prices have been on a rapid decline since the start of May, amid growing fears over an escalating debt crisis in the euro zone and a deeper-than-expected slowdown in China.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of the implementation of harsh austerity measures in Europe.
In the week ahead, markets will be keeping a close eye on developments in Spain, as Madrid begins to hammer out the details of a rescue package for its banks, while uncertainty over the outcome of Greek elections on June 17 is likely to weigh on investor sentiment.
The EU issued a statement Saturday in support of Spain’s request for financial assistance for its troubled banks. It added that it expects the loans to total about EUR100 billion.
Investors will also be eyeing U.S. retail sales data, as well as consumer price inflation figures as investors try to gauge the strength of the country’s economic recovery.
Gold investors will be closely watching U.S. data in the second quarter for clues as to the likelihood of a fresh round of monetary easing, which could potentially hurt the dollar and support gold.
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