Forexpros – Gold prices ended modestly lower on Friday, as hopes that euro zone leaders were moving closer to agreeing on Greece’s much needed bailout package undermined the safe haven appeal of the precious metal.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery settled at USD1,724.75 a troy ounce by close of trade on Friday, easing 0.15% over the week.
Gold futures were likely to find short-term support at USD1,706.85 a troy ounce, the low from February 16 and resistance at USD1,739.15, the high from February 15.
Gold prices have moved in a range between USD1,700 and USD1,760 since the beginning of February, closely tracking developments surrounding Greece’s bailout talks.
German Chancellor Angela Merkel and Greek Prime Minister Lucas Papademos on Friday expressed optimism that an agreement on a second bailout package for Greece would be reached at Monday’s meeting of euro zone finance ministers.
Reports that the European Central Bank exchanged Greek bonds to ensure that its holdings would not be subject to the same restructuring planned for private bond holders added to expectations that a deal is imminent.
However, markets remained jittery after European officials warned that that there was still a long way to go in order for Greece to meet the target for its debt burden which would allow the EUR130 billion bailout to proceed.
Without a bailout, Greece faces the threat of defaulting when a EUR14.5 billion bond redemption comes due on March 20.
While gold is traditionally viewed as a safe haven, the metal has been tracking riskier assets in the past few months as the turmoil caused by the euro zone debt crisis forces investors to sell their profitable gold positions to cover losses elsewhere.
Prices remained supported amid indications investment demand for the precious metal remains strong.
Hedge fund manager and long-time gold bull John Paulson advised investors to buy the precious metal as an inflation hedge.
Paulson explained in a letter to his investors, “By the time inflation becomes evident, gold prices will probably have moved, which implies now is the time to build a position in gold.”
Data from the World Gold Council showing that global gold demand in 2011 hit a 14-year high on investment, China buying and central bank purchases also supported gold.
In its quarterly Gold Demand Trends report published Thursday, the World Gold Council said that global demand for gold reached 4,067.1 tonnes last year, the highest tonnage since 1997.
Investment demand rose 5% to a record 1,640.7 tonnes.
In the final three months of 2011, China consumed 190.9 tonnes of gold, compared with India’s 173.0 tonnes, ranking China top in terms of consumption.
Total demand for gold in China in 2011 rose 20% to 769.8 tonnes, driven by jewelry and investment demand, compared with a 7% fall in demand in India to 933.4 tonnes as a result of volatile gold prices and a weak rupee.
The WGC also reported that European demand for the precious metal rose by more than a quarter year-on-year to 374.8 tonnes in 2011, as investors turned to the metal as the region’s debt crisis lingered.
According to the data, Germany and Switzerland were the main drivers of growth in demand in the region.
Central banks were avid buyers of gold, with 439.7 tonnes’ worth of purchases in 2011, more metal than at any time since the end of the gold standard in 1971, compared with a modest 77 tonnes in 2010.
Elsewhere on the Comex, silver for March delivery settled at USD33.27 a troy ounce by close of trade on Friday, retreating 1.59% on the week, while copper for March delivery tumbled 4.2% over the week to settle at USD3.720 a pound, the lowest since January 17.
In the week ahead, markets will be keenly awaiting the outcome of Monday’s meeting of euro zone finance ministers.
Comex floor trading will be closed on Monday, February 20 for the Presidents Day holiday.
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