Gold prices firmed in Europe on Friday, the day after posting their biggest one-day decline since February 29, as lower prices tempted some cautious buyers back to the market and as crude oil recovered from 18-month lows.
The metal fell sharply on Thursday after the Federal Reserve disappointed investors by failing to announce a new round of quantitative easing to boost growth in the United States.
Talk that more stimulus measures were on the way, which would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom and weighing on the dollar, had buoyed the metal earlier this month.
It has since erased the bulk of June's gains and is on track for its biggest weekly loss since early March.
Spot gold was up 0.3 percent at $1,569.39 an ounce at 12:46 SA time, while US gold futures for August delivery were up $4.60 an ounce at $1,570.10. Its modest gains tracked a recovery in crude oil prices from 18-month lows on Friday.
“Since August, September, gold has been trading like any other commodity,” Natixis analyst Nic Brown said. “The one thing that will support prices this year is the potential for further aggressive monetary stimulus in the United States, whether it is QE or a new policy.”
He said while the Fed had chosen not to pursue aggressive stimulus measures, poor economic data from Europe, China and the United States on Thursday suggested continued pressure for some sort of action to stimulate growth.
“The Fed may be forced into doing something,” he said. “The fundamentals in the US may be improving ... but the European situation is managing to drag everyone else down with it.”
A Reuters poll on Thursday showed Wall Street's top bond firms still estimated a 50 percent chance that the Fed would begin a third round of quantitative easing.
Concerns over global growth remained high on Friday after data showed China's factory sector shrank for an eighth month, business activity in the euro area contracted and US manufacturing grew at its slowest pace in 11 months, while riskier assets were knocked by a Moody's downgrade of the world's major banks.
European shares extended the previous session's losses as recent poor economic data raised fresh concerns about the pace of global recovery, while the dollar rose against a basket of currencies, supported by safe-haven flows.
“The recent sell-off (in gold) could well prove to be excessive ... if risk aversion rises again in the coming months,” investment bank Fairfax said in a note.
From a technical perspective, gold is seeing good support at $1,560, and below that at $1,530, analysts who study past price patterns for clues as to the future direction of trade said.
“The price action looks weak, but overall the metal has been contained in this 1528 to 1640 range for two months,” ScotiaMocatta said in a note. “A break of 1523, the December low, would see liquidation looking for a bigger move.”
Demand for physical gold in key markets remained lacklustre, meanwhile. Gold imports to India, historically the world's largest buyer, fell by $6.2 billion in the first two months of the fiscal year that began in April, compared with a year before, finance secretary R.S. Gujral said on Friday.
Gold buying in India has been hurt by weakness in the rupee, which pushed local prices to record highs, and the federal government's decision to double import duty on gold to 4 percent. Gold imports have been widely blamed as one of the reasons for the country's widening current account deficit.
The market remained underpinned by demand from central banks, meanwhile. Russian newswire Interfax reported a 15.6 tonne rise in Russia's gold reserves in May.
Silver was up 0.4 percent at $26.95 an ounce. Prices fell 4.4 percent on Thursday and touched their lowest this year earlier on Friday at $26.60.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to its highest since October 2010 this morning, at 58.2.
Demand for silver American Eagle coins from the US Mint has been sluggish this year, with sales of only 1.975 million ounces recorded so far this month, well below last June's total of 3.402 million ounces.
Spot platinum flat at $1,430.32 an ounce, while spot palladium was up 0.2 percent at $604.45 an ounce. - Reuters