Forexpros – Gold futures eased down in thin year-end trade conditions on Friday, with many traders having already closed their books for the year and moving to the sidelines, waiting for a fresh start in January.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery settled at USD1,608.55 a troy ounce by close of trade on Friday, edging up 0.2% over the week, the first weekly gain in three.
Gold futures were likely to find short-term support at USD1,595.45 a troy ounce, the low of December 20 and resistance at USD1,643.65, the high of December 21.
Trading volumes were light ahead of the Christmas holiday weekend, reducing liquidity in the market and increasing the volatility.
Gold’s modest decline on Friday came as the U.S. dollar strengthened amid indications the U.S. economic recovery was gaining momentum.
Government data showed that U.S. new home sales rose to 315,000 in November, up 1.6% above October’s revised rate of 310,000, while durable goods orders rose a better-than-expected 3.8% in November from October.
Both reports came amid a week marked by bullish U.S. economic indicators, including a report showing that initial jobless claims fell to the lowest level since April 2008.
Meanwhile, Italy saw the yield on its ten-year bonds top the critical 7%-threshold, a level widely viewed as unsustainable in the long term, renewing fears over the fiscal health of the euro zone’s third largest economy.
The threat of mass credit ratings downgrades for euro zone countries still lingered, with Standard & Poor’s yet to announce if it will cut ratings on any of the 15 countries it has on credit watch negative.
Concerns over the health of European lenders intensified on Wednesday after the European Central Bank allotted EUR489 billion to 523 European banks in its first offer of unlimited three-year loans.
Gold prices initially spiked higher following the news before falling back as the scale of the operation indicated that European lenders believe that funding shortages were likely to continue into 2012.
For much of the last year, investors’ typical reaction to bad news from Europe was to buy gold, as it boosts the safe haven appeal of the precious metal, but that relationship has unraveled recently.
Gold has been pressured in recent months, with its safe haven appeal waning as investors prefer the U.S. dollar as their safe haven of choice amid Europe’s deepening sovereign debt crisis.
Year-end selling by hedge funds and tight liquidity in European interbank money markets have also contributed to recent price falls.
Prices have tumbled nearly 15% since hitting a record high of USD1920 in early September. Despite the slump, prices are still 13% higher on the year, on track for its 11th consecutive annual gain.
Despite the recent slump in prices, French lender BNP Paribas reiterated its bullish outlook for gold in 2012, citing “increases in liquidity by central banks and possible rises in inflation expectations”.
In a report published earlier in the week, the bank said that it expects the precious metal to average USD1,775 a troy ounce in 2012 and USD2,150 in 2013.
However, the report added that “with high uncertainty likely to remain a major feature of the markets, gold could be vulnerable to further episodes of price correction.”
Elsewhere on the Comex, silver for March delivery settled at USD29.09 a troy ounce by close of trade on Friday, losing 2.05% on the week, while copper for March delivery settled at USD3.468 a pound, gaining 3.48% over the week.
Comex trading volumes were expected to be light this week ahead of the upcoming New Year holiday, as market participants tend to move to the sidelines and take time off during the last week of December.
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