Forexpros – Gold prices ended modestly lower on Friday, as investors cashed out of the market to lock in gains from a rally that took prices to a three-month high on Thursday, but prices remained well-supported ahead of a second liquidity operation by the European Central Bank next week.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery settled at USD1,773.55 a troy ounce by close of trade on Friday, climbing 2.15% over the week, the largest weekly gain in four.
Prices rose to USD1,788.85 a troy ounce on Thursday, the highest since November 14.
Gold futures were likely to find support at USD1,750.85 a troy ounce, the low from February 22 and short-term resistance at USD1,788.85, Thursday’s high.
Gold prices rallied nearly 3% in three sessions leading up to Friday, boosted by a broadly weaker U.S. dollar, optimism that the debt crisis in the euro zone is improving and growing expectations for further monetary easing measures from global central banks.
Some technical buying also helped push prices higher after futures broke above a key technical resistance level close to USD1,765 an ounce on Wednesday, indicating an upward momentum in prices and triggered fresh buy orders from large institutional investors and hedge funds.
However, the sharp jump in prices prompted some investors to sell their position and lock in gains on profit taking. Market participants also noted strong resistance in front of the USD1,800-an-ounce level.
Prices remained supported as investors eyed the launch of a second liquidity operation by the ECB next week.
The ECB’s second three-year long-term refinancing operation, known as an LTRO, is scheduled for February 29 and could total nearly EUR500 billion, according to market analysts.
More than 500 European banks took EUR489 billion in three-year loans at the ECB’s first three-year LTRO in December.
The liquidity injection has been credited with easing worries over the prospect of a cataclysmic credit crunch in the euro zone, reigniting risk appetite and boosting overall asset prices.
Gold can benefit from such an environment of easy money because of expectations that ample liquidity would put a damper on the value of paper currencies, boosting the metal’s appeal as an inflation hedge.
Meanwhile, the international tensions over Iran’s nuclear program and the subsequent rise in oil prices to nine-month highs are also supporting gold prices.
Israel and the U.S. have previously stated that all options are on the table in ensuring the Islamic Republic does not acquire atomic weapons.
Higher oil prices tend to benefit gold as it enhances its appeal as a hedge against oil-led inflation.
Wall Street investment bank Goldman Sachs remains bullish on the precious metal. In a report published earlier in the week, the bank said that in the longer term, gold is expected to continue benefiting from low U.S. interest rates, central bank buying and strong demand from key markets like China.
“Consequently, we expect gold prices to continue to rise through 2012, reaching USD1,940 an ounce in 12 months, and we continue to recommend a long gold position,” the bank said.
Elsewhere on the Comex, silver for March delivery settled at a five-month high of USD35.46 a troy ounce by close of trade on Friday, soaring 5.25% on the week.
Silver prices surged higher after prices broke above their 200-day-moving-average of USD34.84 on Thursday, signaling bullish momentum in prices.
Meanwhile, copper for March delivery rose 2.65% over the week to settle at USD3.867 a pound, the highest since February 13.
Copper stockpiles registered on the Shanghai Futures Exchange have fallen for the first time since early December. German lender Commerzbank noted that, “This offers a glimmer of hope” for copper as the prior inventory build there fueled fears Chinese demand could weaken.”
In the coming week, markets will be watching developments in the euro zone, with investors eyeing the uptake on Wednesday’s refinancing operation by the ECB, as well as the outcome of votes in Finland and Germany on Greece’s bailout.
Investors will also be focusing on Wednesday’s U.S. data on fourth quarter economic growth, in order to gauge the strength of the country’s economic recovery, as well as testimony from Fed Chairman Ben Bernanke.
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