Forexpros – Gold futures regained strength on Friday, rebounding off a two-week low as investors returned to the market to seek cheap valuations, but the precious metal ended the week sharply lower as traders unwound long positions after the Federal Reserve stopped short of launching a third round of quantitative easing.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery settled at USD1,573.15 a troy ounce by close of trade on Friday.
Earlier in the day, prices fell to USD1,559.15 a troy ounce, the lowest since June 8. Despite Friday’s gains, gold futures declined 2.9% on the week thanks to Thursday’s sell-off.
Gold futures were likely to find support at USD1,546.35 a troy ounce, the low from June 1 and near-term resistance at USD1,605.25, the high from June 21.
Gold futures plunged 2.45% on Thursday, the largest one-day decline since February, after the Fed announced that it was extending the current bond buying program, known as “Operation Twist”, until the end of this year following its policy meeting on Wednesday.
Under Operation Twist, the Fed sells short-dated Treasury instruments and buys longer-dated Treasury’s in tandem with the aim of pushing down long-term interest rates.
The announcement disappointed market expectations for more aggressive measures to shore up growth in the world’s largest economy, following a recent string of weak U.S. data.
Gold gained as much as 15% earlier this year to hit USD1,790 an ounce after the Fed said in January it would keep interest rates near zero until at least late 2014 and indicated that it could introduce a fresh round of asset-purchases.
However, prices have lost almost 12.5% since late February, amid a lack of aggressive Federal Reserve stimulus and growing concerns the European debt crisis has been escalating, which has fueled demand for the yellow metal’s hedge, the greenback.
Elsewhere, markets continued to monitor developments out of the euro zone. The European Central Bank relaxed rules on collateral for central-bank loans on Friday.
Meanwhile, German Chancellor Angela Merkel and the leaders of France, Italy and Spain agreed to push for a EUR130 billion growth package for struggling euro zone economies at a European Union summit beginning next week.
Spain’s deteriorating fiscal health remained in focus. The yield on Spanish 10-year bonds settled at 6.38% by close of trade on Friday, after surging to a euro-era high of 7.28% on Monday.
Spain was expected to make a formal a bailout request for its banks over the weekend after reports on Thursday indicated that Madrid would need EUR62 billion to secure its banking sector.
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, as the precious metal has been moving in tandem with riskier assets since hitting a record high of USD1,920 last September.
Gold has lost some of its safe haven appeal to the dollar, U.S. Treasuries and German Bunds, partly as a strengthening dollar makes the metal less attractive to buyers holding other currencies.
From a technical standpoint, support for gold is found around the USD1,540-area and upside resistance at USD1,640. Bullion rose toward that level several times earlier in June but failed in each attempt.
Elsewhere on the Comex, silver for July delivery settled at USD26.72 a troy ounce by close of trade on Friday, tumbling 6.5% on the week. Prices fell to as low as USD26.51 earlier in the day, the lowest since December 29, 2011.
Meanwhile, copper for July delivery retreated 3.1% over the week to settle at USD3.315 a pound. Prices fell to as low as USD3.256 earlier in the day, the lowest since June 4.
Prices lost 2.5% on Thursday, after a string of weak economic data out of China, Europe and the U.S. saw investors shed growth-linked assets. A Moody’s downgrade of the world’s major banks further weighed on risk-sensitive assets.
In the week ahead, investors will be focusing on the upcoming EU summit amid growing expectations for progress on greater fiscal integration and allowing the bloc’s rescue funds to buy government debt.
Elsewhere, the U.S. is to release official data on inflation, manufacturing output and new home sales.
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