Gold prices rose above $1,730 an ounce on Friday as positive German economic data and hopes that Greece's creditors are nearing an agreement to tackle its debt lifted the euro to a three-week high versus the dollar and trimmed losses in stocks.
Trade was expected to be quiet, however, with the US stock market open for only a half-day of business after the Thanksgiving holiday on Thursday.
“The dollar is coming off on the back of the German data and hopes for a Greek deal, and this is supporting gold,” Andrey Kryuchenkov, analyst with VTB Capital, said.
“Gold is likely to trade sideways, with key resistance at $1,740, but the price will depend on where the euro goes.”
Spot gold was up 0.19 percent at $1,732.31 an ounce at 16:42 SA time, while US gold futures for December delivery were up $4.30 an ounce at $1,732.50.
The metal has risen more than 1 percent this week, lifted by gains in the euro, which is set for its biggest weekly rise in seven, and worries over the US 'fiscal cliff', a $600 billion package of tax and spending changes set to kick in next year.
“Investors are looking to buy into the dips because there is obviously still event risk around the fiscal cliff, and we're not sure whether China's really rebounding or not,” Societe Generale analyst Robin Bhar said.
“Those are two big uncertainties that I think will make the market want to at least support the dips,” he added. “We could finish the year around $1,740, $1,750. Between now and then, I'd expect to stay rangebound.”
In the near term gold was set to take direction from the wider markets. It tends to benefit from dollar weakness, which makes assets priced in the US unit cheaper for other currency holders, and firmer appetite for assets seen as higher risk, such as stocks and commodities.
The euro extended gains versus the dollar to hit a session peak in early New York trade on Friday, helped by German data and hopes that Greece's lenders were nearing an agreement to release further aid for the debt-stricken country.
The International Monetary Fund has relaxed its debt-cutting target for Greece and only a 10 billion euros ($13 billion) gap remains to be filled for a vital aid tranche to be paid, Greece's finance minister said on Friday.
Finland's finance minister said she expected a deal to be done on Greek debt on Monday.
Gold prices are set to face resistance around $1,740 an ounce, technical analysts said.
“Gold is just a few dollars shy of its 50-day moving average sitting at $1,741, and more importantly, a key technical level lurking at $1,739.10,” UBS said in a note.
“Our technical strategist notes that a break above this level, which is the month's high, would be a crucial bullish development that would open up $1,748.95, the 62 percent retracement of the October/November sell-off ahead of $1,794.80, the October high.”
Dealers said on Friday that business was slow in Asia's physical gold market as rangebound prices dampened interest from both potential buyers and scrap sellers, defying expectations of a pick-up in demand during the holiday season.
Analysts and traders had expected demand to strengthen during the holiday season in the last quarter of the year, with top consumers India and China, which between them account for nearly half of global gold demand, leading the way.
“China's demand isn't on a downtrend, but it's not picking up either,” a Hong Kong-based dealer said.
Harmony Gold, South Africa's third-largest bullion producer, said on Friday operations at its Kusasalethu mine had not been affected by violence between rival labour unions that left two miners dead.
Silver was up 0.48 percent at $33.44 an ounce. It has outperformed gold to rise 3.5 percent this week, pushing the gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, to a six-week low at 51.9.
Spot platinum was up 0.62 percent at $1,589.25 an ounce, while spot palladium was up 0.28 percent at $656.25 an ounce. - Reuters