Forexpros – Gold futures edged higher on Friday, but remained close to a three-week low as market sentiment continued to be dominated by developments surrounding the euro zone’s deepening debt crisis.
On the Comex division of the New York Mercantile Exchange, gold futures for December delivery settled at USD1,724.55 a troy ounce by close of trade on Friday, tumbling 3.7% over the week, its steepest one-week decline since late September.
Gold prices fell to USD1710.40 a troy ounce on Friday, the lowest since November 1, as investors liquidated profitable gold positions to raise cash and cover losses in other asset classes.
However, prices came off their lows as the U.S. dollar weakened amid speculation that the European Central Bank may lend to the International Monetary Fund for sovereign bailouts.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, declined 0.36% to settle at 78.22 on Friday.
Meanwhile, Italian bond yields eased back below the 7% threshold widely seen as unsustainable for borrowing in the long term on Friday, after newly-appointed Italian Prime Minister Mario Monti won a parliamentary confidence vote.
Spanish bond yields also declined after rising close to 7% at a government bond auction earlier in the week, as the ECB purchased Italian and Spanish government debt.
Italy and Spain are the two largest economies among the peripheral euro-zone countries, and markets long have feared a debt crisis centering on those two nations would have the potential to bring down the euro.
For much of the last year, investors’ typical reaction to bad news from Europe was to buy gold, however fears mounting fears over a potential liquidity crunch have pushed investors to cut their holdings in favor of cash in recent sessions.
Gold prices tumbled on Thursday, dropping nearly 2.4% amid widespread talk of possible selling by big hedge funds covering losses in other markets.
Hedge fund billionaire John Paulson reduced his gold holdings for the first time in two years during the third quarter, according to a filing with the Securities and Exchange Commission earlier in the week.
Meanwhile, the ECB said on Tuesday that gold and gold receivables held by euro zone central banks fell by EUR2 million to EUR419.82 billion in the week ending November 11.
Gold holdings fell due to the sale of gold by one euro zone central bank, consistent with the latest Central Bank Gold Agreement, the ECB said.
Despite the recent price slump, the World Gold Council said on Thursday that global gold demand rose 6% in the third quarter from a year earlier, as the euro zone’s sovereign debt crisis spurred demand for the precious metal as a haven asset.
Global demand rose to 1,053.9 metric tons worth a record USD57.7 billion in the three months to September. Investment jumped 33% to 468.1 tons, while bar and coin purchases increased 29% to 390.5 tons.
The report also showed that central-bank and government-institution purchases jumped more than six-fold to 148.4 tons in the quarter, on pace to reach the highest amount since 1970.
Elsewhere on the Comex, silver for December delivery settled at USD32.35 a troy ounce by close of trade on Friday, plunging 6.82% on the week, while copper for December delivery settled at USD3.398 a pound, slumping 2.21% over the week.
In the week ahead, investors will be keeping a close eye on developments within the euro zone. Meanwhile, U.S. data on third quarter growth and durable goods orders will be closely watched, in order to gauge the strength of the country’s economic recovery.
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