Forexpros – Gold futures edged modestly higher in choppy trade on Friday, paring a weekly loss after a crucial summit of European Union leaders concluded with an agreement to introduce tighter fiscal controls across the single currency bloc.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery settled at USD1,715.15 a troy ounce by close of trade on Friday, dropping 2.05% over the week.
Gold futures were likely to find short-term support at USD1,706.05 a troy ounce, the low of December 6 and resistance at USD1,760.35, the high of December 8.
A two-day summit of 27 European leaders ended with an agreement to increase the financial backstops to countries with debt problems by channeling EUR200 billion of funds to the International Monetary Fund.
However, investors remained jittery after EU leaders failed to secure unanimous support for a new EU fiscal treaty after U.K. Prime Minister David Cameron vetoed any changes to the treaty, meaning new fiscal rules will have to operate as an intergovernmental agreement. They also postponed decision on increasing the capacity of the European Stability Mechanism until March.
“We’re doing everything we can to save the euro,” French President Nicolas Sarkozy said at a press conference Friday.
For much of the last year, investors’ typical reaction to downbeat news from Europe was to buy gold, as it boosts the safe haven appeal of the precious metal.
However, gold futures have tended to move in line with stocks and other industrial commodities in recent weeks, with investors moving in to cash as a safe bet amid ongoing global financial turmoil and economic uncertainty.
Europe’s largest lender HSBC Holdings said in a report Friday, “It appears that gold prices are more closely influenced by risk-related trading than by currency-led trading or safe-haven buying.”
The lender added that it expected gold prices to remain “on the defensive” in the near-term, citing growing evidence of a “liquidity squeeze” in financial markets and as traders “close books to lock in profit before the end of the year”, reducing liquidity in the market and increasing the volatility.
Friday’s modest gains were not enough to reverse Thursday’s 2% drop as market sentiment was rattled after European Central Bank President Mario Draghi quashed expectations that the central bank would step up its bond purchasing program once a political solution to the debt crisis was reached.
The ECB cut its benchmark interest rate by 0.25%, bringing rates back to a record low of 1%.
Elsewhere on the Comex, silver for March delivery settled at USD32.25 a troy ounce by close of trade on Friday, slumping 1.22% on the week, while copper for March delivery settled at USD3.572 a pound, shedding 0.35% over the week.
Official data on Friday showed that Chinese consumer price inflation rose 4.2% in November, the smallest gain in 14 months, easing sharply from 5.5% in October. The data boosted speculation that Beijing will introduce further monetary easing measures in the near-term to help bolster growth in the world’s second biggest economy.
In the week ahead, investors will be keeping a close eye on the borrowing costs of troubled euro zone states, as a rise in bond yields could prompt a rating cut after Standard & Poor’s warned that it may carry out a mass downgrade of 15 euro zone members, including Germany, France, Italy and Spain.
Italy and Spain are both set to auction government bonds in the coming week.
Markets will also be closely watching the Federal Reserve’s policy setting meeting on Tuesday, as concerns over the impact of the euro zone’s financial crisis on global growth continue to weigh.
Forexpros
