Forexpros – Gold futures regained strength on Friday, rising for the first time in four days as the U.S. dollar came under pressure after euro zone finance ministers agreed to strengthen the region’s debt firewall, while some bargain buying provided further support.
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery settled at USD1,669.75 a troy ounce by close of trade on Friday, gaining a modest 0.45% over the week.
On the quarter, gold futures gained 6.7%, following a 3.4% decline in the fourth quarter of 2011.
Gold futures were likely to find support at USD1,627.75 a troy ounce, the low from March 22 and resistance at USD1,699.55, the high from March 27.
Gold prices took cues from the currency market on Friday, tracking movements in the euro. Gold remains more sensitive to moves in the euro/dollar exchange rate in the short term than to rising risk aversion, which in the past has been a positive driver of prices.
The single currency was boosted after euro zone finance ministers agreed to boost the bloc’s bailout lending limit to EUR800 billion, in order to combat the threat of sovereign debt contagion to larger economies such as Italy and Spain.
The firewall is to be comprised of EUR500 billion from the European Stability Mechanism, which will come in to effect from July, another EUR200 billion already committed in loans to Greece, Ireland and Portugal and EUR100 billion in bilateral loans and European Union funds.
Meanwhile, concerns over high Spanish borrowing costs eased somewhat after Spain’s government announced EUR27 billion of cuts in the most austere budget in 30 years, amid concerns that the country may be the next to need a bailout.
The news saw risk appetite sharpen, with investors shunning the relative safety of the U.S. dollar. The euro traded close to a four-week high against the dollar, while the pound jumped to a five-month high against the greenback.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, settled at 79.11 by close of trade Friday, the lowest since March 2. On the quarter, the index lost 1.82%.
Dollar weakness usually benefits gold, as it boosts the metal’s appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
Some bargain buying provided further support, as gold traders returned to the market after the recent selloff.
Gold prices lost nearly 2.5% in the three sessions leading up to Friday as a failure to break above a key resistance level close to USD1,700 an ounce earlier in the week prompted some selling from technical traders amid bearish chart signals.
Prices rose to as high as USD1,699.55 a troy ounce on Tuesday, after Federal Reserve Chairman Ben Bernanke said that “continued accommodative policies” are needed to bring about big gains in the U.S. jobs market, which he described as “far from normal,” despite a recent improvement.
Markets interpreted the comments as an indication the central bank will maintain its ultra-loose monetary policy and reinforced the view that further easing from the central bank may be possible.
QE has been a key driver in gold’s bull run over the past year, as it keeps interest rates and borrowing costs low, which makes gold more attractive compared with yield- or dividend-bearing assets such as bonds or stocks.
Prices have been under pressure in recent weeks as investors unwound long positions after the Fed gave an upbeat assessment of the U.S. economy earlier in March, which reduced expectations for a third round of U.S. monetary easing.
Gold has fallen almost 7% since hitting rising to USD1,790 in late February and are about 13.5% below the all-time high of USD1,920 per ounce hit in September.
Meanwhile, gold traders continued to monitor developments surrounding a nationwide strike by bullion and jewelry dealers in India, which has led to muted demand on the physical market in New Delhi over the past two weeks.
India’s Finance Minister said earlier in the week that the country will not cut import duty on gold, which it doubled to 4% this month, although it is considering jewelers’ demands for the removal of a 0.3% excise duty on unbranded jewelry.
Most Indian jewelry and gold shops have remained closed since March 18 after the country announced a 4% import duty hike on gold and a 0.3% excise tax on most gold jewelry.
According to local traders, imports could decline by as much as 35% in 2012 from a record 969 tonnes a year earlier, while the industry might face more difficult time in coming days as marriage season begins.
India is the world’s top gold consumer.
Elsewhere on the Comex, silver for May delivery settled at USD32.23 a troy ounce by close of trade on Friday, easing down 0.21% on the week. Meanwhile, copper for May delivery added 0.28% over the week to settle at USD3.824 a pound.
On the quarter, silver futures jumped 16%, which follows three quarters of losses in 2011 and yearly losses of 9.8%. Quarterly gains for copper reached 11%, after 2011 losses of 23%.
In the week ahead, investors will be focusing on Monday’s U.S. manufacturing data, as well as Friday’s report on non-farm payrolls.
In the euro zone, market participants will be looking ahead to Wednesday’s European Central Bank policy meeting, as well as data on retail sales and unemployment, amid concerns that the bloc is slipping into a recession.
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