Forexpros – Gold futures edged modestly higher in subdued trade on Friday, boosted by a broadly weaker U.S. dollar as investors searched for the next catalyst to take prices higher.
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery settled at USD1,643.65 a troy ounce by close of trade on Friday. On the week, prices shed 0.6%.
Gold futures were likely to find support at USD1,613.55 a troy ounce, the low from April 4 and resistance at USD1,681.15, the high from April 12.
Trading volumes on COMEX gold futures were below-average on Friday as investors stuck to the sidelines ahead of a key option expiration next week.
COMEX gold futures’ open interest, a liquidity gauge measuring the number of contracts outstanding, fell below the 400,000-lot for the first time this week, while Friday’s volume was on track to be one of the weakest this year.
Gold prices have been stuck in a narrow trading pattern in recent days, as investors search for the next catalyst to take prices higher.
Gold’s modest gains on Friday came as the euro jumped to a two-and-a-half-week high against the U.S. dollar. 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 euro was boosted after the Group of 20 leading economies agreed Friday to increase the International Monetary Fund’s lending capacity by USD430 billion, to help shield the global economy from the debt crisis roiling the euro zone.
Also supporting the single currency, the Ifo Institute for Economic Research said its index of German business climate ticked up to 109.9 in April, from 109.8 in the preceding month, against expectations for a decline to 109.5.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, declined 0.53% on Friday to end the week at 79.28, the lowest since April 3.
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.
Meanwhile, gold traders continued to monitor U.S. economic data for clues as to the likelihood of a fresh round of monetary easing, which could potentially hurt the dollar and support gold.
Data on Thursday showed that manufacturing activity in the Philadelphia-region expanded at a slower rate than expected in April and U.S. existing home sales declined unexpectedly last month.
The data came after a government report showing that the number of people who filed for unemployment assistance in the U.S. last week fell less-than-expected, while the previous week’s figure was revised higher.
The Department of Labor said the number of individuals filing for initial jobless benefits in the week ending April 14 fell by 2,000 to a seasonally adjusted 386,000, disappointing expectations for a decline of 18,000 to 370,000.
The previous week’s figure was revised up to 388,000 from 380,000.
The soft data sparked concerns over the strength of the U.S. economic recovery, ahead of the Federal Reserve’s two-day policy meeting this week.
Expectations of monetary stimulus tend to benefit gold, as the metal is seen as a safe store of value and inflation hedge.
Meanwhile, activity in key physical markets in Asia remained muted, even as one of India’s largest Hindu gold-buying festivals of Akshaya Tritiya was set to start on April 24, as high prices and rupee weakness curbed interest in the metal.
Gold prices dropped to as low as USD1,631.45 on Thursday as Spain’s borrowing costs rose above 6% amid fears that the government will struggle to reduce one of the largest deficits in the euro zone, in the face of a looming recession.
There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears Spain will be the next in the euro zone to require a bailout.
Although gold’s appeal as a safe haven is boosted during times of economic uncertainty, the euro zone’s debt crisis has done little to bolster appetite for the precious metal in recent months.
A weakening euro and stronger dollar have weighed on gold instead. Gold’s recent tight correlation with the euro leaves the precious metal vulnerable to a pull back should the euro zone’s debt crisis worsen.
Elsewhere on the Comex, silver for May delivery settled at USD31.66 a troy ounce by close of trade on Friday, gaining 0.78% on the week. Meanwhile, copper for May delivery rallied 2.35% over the week to settle at USD3.692 a pound.
Copper prices surged nearly 2.5% on Friday, after dropping to the lowest level since January earlier in the week.
Market analysts said prices were underpinned by hopes that China will introduce fresh measures to support the nation’s economy, potentially propping up copper demand. The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.
In the week ahead, inventors will be eyeing the Fed’s rate statement for any signs that the central bank is leaning towards another round of monetary easing.
In addition, market sentiment looks set to remain dominated by concerns over Spain’s fiscal woes, as well as Sunday’s first-round presidential vote in France.
President Nicolas Sarkozy and Socialist challenger Fran?ois Hollande are expected to move to a head-to-head runoff on May 6. Most French opinion polls show Hollande would prevail in that runoff.
In addition, Italy is due to auction 10-year government bonds on Thursday. The amount to be offered is to be announced on Monday.
Bond auctions have become key drivers of risk sentiment in recent months, as traders attempt to gauge the ability of indebted euro zone nations to fund themselves.
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