Gold prices eased on Friday as waning appetite for higher-risk assets and a firmer dollar prompted investors to cash in gains after a seven-session rally to 4-1/2 month highs, though they stayed on track for their biggest weekly rise since early June.
Platinum was also set for a second strong week of gains, up 5 percent and nearly 9 percent this month, after an outbreak of violence at a platinum mine in South Africa, source of around 80 percent of annual supply of the metal, saw 44 people dead.
Spot gold has risen more than 3 percent this week after minutes of the Federal Reserve's August policy meeting showed the bank is likely to deliver another round of monetary stimulus “fairly soon” unless the US economy improves considerably.
Such a move would likely benefit gold, boosting liquidity while keeping long-term interest rates low and fuelling fears of inflation further down the track. The first two rounds of US quantitative easing - money printing to buy bonds - have fuelled a doubling of gold prices in the last four years.
The news lifted gold out of the near $100 range it had held within since mid-May and above its 200-day moving average for the first time since March.
“Gold has finally moved and looks like it wants to test the $1,700 level sooner than later, but there are no physical buyers at the moment,” Afshin Nabavi, head of trading at Geneva's MKS Finance, said.
“If we don't see physical interest back in the market, I think this move will be short-lived.”
Spot gold was down 0.2 percent at $1,667.39 an ounce at 16:19 SA time, while US gold futures for December delivery were down $2.70 an ounce at $1,670.10.
The boost lent to assets seen as higher risk, like stocks and industrial commodities, by Wednesday's Fed minutes showed signs of petering out. European shares extended losses after mixed US economic data further cooled speculation the Fed would launch a new stimulus programme.
Holdings of gold exchange-traded funds, which issue securities backed by physical metal, hit a record 71.253 million ounces, Reuters data showed on Friday.
“Having got the necessary signals from the Fed for QE3, the market is just waiting for a confirmation to spike higher,” Richcomm Global Services analyst Pradeep Unni said. “Any consecutive release of weaker than expected economic data will only add fuel to the fire.”
INDIAN DEMAND FRAGILE
High prices curbed demand for gold in number one consumer India, however, where local prices are at record highs. At the International Gold Convention in Hyderabad, dealers reported talk among Indian buyers that import duties, which were hiked earlier this year to 4 pct, may be further increased to 7 pct.
Last year saw an all-time high of approximately 1,000 tonnes of gold imported into India, but this is predicted to fall to around 650 tonnes this year. “Faced with high prices and government duties, gold imports in the second quarter could be 30-40 percent below what they were last year,” one bullion banker at the conference said.
Local dealers are reporting an increase in the amount of gold moving into India through unofficial channels, and scrap sales are on the rise, the banker added.
Other precious metals retreated along with gold, with platinum down 0.1 percent at $1,536.20 an ounce, off Thursday's near four-month high of $1,558.49 an ounce.
World number one platinum producer Anglo American Platinum said on Friday 100 workers had refused to go underground at its Thembelani mine in South Africa, a sign that simmering discontent in the sector has not been contained.
The company said later that its miners had returned to work.
Silver was up 0.4 percent at $30.62 an ounce, while spot palladium slid 1 percent to $643.47 an ounce.
“The impending increase in risk appetite associated with a third round of quantitative easing goes a long may in offsetting weak fundamentals for silver,” BNP Paribas said in a note.
“Mine supply is set to grow further this year, although the rate of growth has been scaled back and COMEX inventories are still near their peak. If silver net imports into China have rebounded, year-to-date they remain much below 2010 and 2011 levels.” - Reuters