Forexpros – Gold prices were largely unchanged in volatile trade on Friday, as investors continued to rebalance their portfolios amid growing optimism over the U.S. economy.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery settled at USD1,659.85 a troy ounce by close of trade on Friday, dropping 3.15% over the week, the third consecutive weekly slump and the second biggest weekly decline of 2012.
Gold futures were likely to find support at USD1,634.75 a troy ounce, the low from March 14 and short-term resistance at USD1,682.75, the high from March 14.
Gold prices came under pressure following the release of soft U.S. inflation data, which showed consumer prices rose 0.4% in February, in line with expectations. Core inflation rates, which are stripped of volatile food and energy prices, rose 0.1%, below expectations for a gain of 0.2%.
The subdued inflation figures dampened the precious metal’s appeal as a hedge against rising consumer prices.
Also weighing on prices, India proposed to double the import duty on gold to 4% in a move aimed at helping the government to keep its current-account deficit under control.
Local gold priced in Indian rupees surged after the announcement, while international spot prices fell in anticipation of a drop in demand from the South Asian nation.
India is the world’s top gold consumer. The duty hike may lead to a drop in demand for the precious metal.
Prithviraj Kothari, president of the Bombay Bullion Association said India’s annual gold demand could fall by more than 30% to 600 tons after the tax increase and local prices could rise by around 500 rupees per 10 grams.
Meanwhile, market talk that hedge funds and large institutional investors were exiting the gold market and moving in to equities also added to the selling pressure.
However, prices found support after the Financial Times reported that the recent drop in prices has prompted one or more central banks to buy as much as four tonnes of bullion in recent weeks.
The purchases, worth about USD250 million at current prices, were made through the Bank for International Settlements.
The identity of the buyers is not disclosed until the BIS has allocated the gold, though markets speculated the purchase was likely made by an emerging market central bank in Asia.
The Financial Times article noted that central banks had bought between four and six tonnes in the over-the-counter physical market last week.
Citing several traders with knowledge of the transactions, it said purchases were particularly strong at the end of the week.
According to the World Gold Council, central banks were avid buyers of gold in 2011, with 439.7 tonnes’ worth of purchases, the highest level since the end of the gold standard in 1971, compared with a modest 77 tonnes in 2010.
Gold prices plunged nearly 5% in the three sessions leading up to Thursday, as traders continued to unwind long positions after the Federal Reserve gave an upbeat assessment of the U.S. economy, which reduced expectations for a third round of U.S. monetary easing by the central bank.
The sharp rise in U.S. Treasury yields this week has also weighed on gold, due to the knock-on effect on the dollar, which tends to gain in a rising rate-environment.
Gold has fallen around 8% since late February and are about 14% below the all-time high of USD1,920 per ounce hit in September.
Global financial service provider Credit Suisse reiterated its short-term bearish stance on the precious metal.
In a report published Friday, the bank said that investors continue to favor risk over safe haven instruments like U.S. Treasurys and that gold is further hampered by a rally in the dollar.
“We believe there is room for further falls in the gold price in the short term but having already dropped by more than USD70 in three days we are wary of a short-covering bounce,” Credit Suisse said.
Other market participants noted that, with prices now trading well below their long-term technical support, gold could extend losses to USD1,580 an ounce in the short term before recovering.
Elsewhere on the Comex, silver for May delivery settled at USD32.53 a troy ounce by close of trade on Friday. Prices tumbled 5.2% on the week.
Barclays said in a report Friday, that silver’s break below USD33.25 earlier in the week could lead to prices dropping to USD30 per ounce in the near-term.
Meanwhile, copper for May delivery added 0.56% over the week to settle at USD3.883 a pound.
In the week ahead, the U.S. is to release a flurry of data on the housing sector, which investors will be watching closely to gauge the strength of the economic recovery.
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