Forexpros – Gold prices rallied nearly 1% on Friday, reversing early losses suffered in the wake of upbeat U.S. employment data, after the International Swaps and Derivatives Association said Greece’s debt swap deal triggered a “credit event”.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery settled at USD1,714.45 a troy ounce by close of trade on Friday, easing up 0.02% over the week.
Gold futures were likely to find support at USD1,683.75 a troy ounce, the low from March 8 and short-term resistance at USD1,725.15, the high from March 2.
Gold prices initially came under pressure early Friday, dropping to the session low after the U.S. Department of Labor said the U.S. economy added 227,000 jobs in February after increasing by a revised 284,000 the previous month. The unemployment rate held steady at a three year low of 8.3%.
The strong data boosted the dollar and weighed on gold as it diminished expectations for a fresh round of asset purchases by the Federal Reserve to help stimulate economic growth.
But gold prices turned higher in the final few hours of Friday’s trading session, rising in tandem with the U.S. dollar, after the International Swaps and Derivatives Association said Greece’s debt swap deal constituted a “credit event”, which will trigger the payout of insurance protection on the country’s bonds to those who held credit default swaps.
The industry group said the decision was unanimous and was based on Greece’s use of collective action clauses that forced all Greek private creditors to take losses on their bond holdings.
Earlier Friday, Greece announced that more than 85% of its private creditors had signed up to a debt swap deal, aimed at restructuring 53.5% of the country’s debt. The deal cleared the way for Athens to secure a second bailout worth EUR130 billion.
In recent weeks, gold prices have tended to move in line with the euro as investors preferred to turn to the relative safety of the U.S. dollar. But that relationship finally unraveled on Friday.
The euro tumbled more than 1% against the greenback, while the dollar index settled at a six-week high of 80.42 by close of trade on Friday.
Gold is often seen as an alternative currency and a safe haven in times of economic uncertainty. Investors frequently purchase the metal to diversify portfolios and guard against losses elsewhere.
Also supporting prices, official data showed that Chinese consumer prices rose by 3.2% in February from a year earlier, the slowest pace in 20 months.
The tame inflation data was seen as providing policy makers with more leeway to introduce fresh monetary easing measure to help prop up the economy.
Gold prices came under broad selling pressure earlier in the week, dropping to a six-week low on Tuesday after prices broke below their 200-day moving average.
Market participants said that fresh sell orders were triggered once prices fell below a key technical support level close to USD1,675 an ounce.
But prices rebounded in the final three trading sessions of the week, supported by bouts of bargain and technical buying after futures bounced off key support levels.
Gold prices got another boost mid-week from a report in the Wall Street Journal saying that the Fed was considering a new type of mortgage and Treasury bond-buying program to help stimulate the U.S. economy.
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.
Elsewhere on the Comex, silver for May delivery settled at a four-day high of USD34.31 a troy ounce by close of trade on Friday. Prices retreated 1.29% on the week.
Meanwhile, copper for May delivery fell 1.38% over the week to settle at USD3.851 a pound.
In the week ahead, investors will be continuing to watch developments in Greece, with the euro likely to remain under pressure after Friday’s ISDA ruling.
Gold traders will also pay close attention to Tuesday’s rate announcement from the Fed and any indications of further easing measures in the world’s largest economy, though expectations are low for any breakthrough.
Swiss lender Credit Suisse said in a report over the weekend that, “The March 13 meeting of the Federal Open Market Committee is likely to be a more routine affair than the policymakers’ last meeting in January. We expect no new policy or communications initiatives to arise from this one-day meeting.”
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