Gold climbed on Friday, helped by an advancing euro, but still looked set to end the week on a flat footing as patchy consumer demand weighed and increasing optimism about the economic outlook dampened investor appetite for the metal.
Global equities drifted lower on Friday, having touched eight-month peaks earlier in the week, and were pulled down by a decline in U.S. home sales as concerns about global growth cooled enthusiasm.
This month, the gold price has lost nearly 2 percent in value as a shift in the perception among investors of the health of the U.S. economy in particular has made so-called safe-haven assets such as gold or U.S. Treasuries less attractive compared with stocks or higher-yielding currencies.
Spot gold was up around 1 percent at $1,662.21 an ounce by 1500 GMT, having recovered from a low of $1,627.68 on Thursday.
“In the last month or two people are taking the view that the kind of tail risks around the outlook for the world economy have diminished,” Standard Chartered analyst Daniel Smith said.
“In terms of the U.S. macro story there’s no doubt it’s been outperforming people’s expectations … and in terms of Europe, Greece got its second bailout and bond yields in Germany have come in pretty sharply so those kind of things are certainly weighing on gold and have helped to bring prices down,” he said.
The decline in the gold price earlier this week took its toll on investment in exchange-traded funds backed by physical metal, resulting in the largest one-day fall in holdings on Friday in three months.
“We don’t see a huge amount of downside for gold prices from current levels, and we would be looking for the market to form a base soon and then move higher as we progress through the year,” Smith said, adding that he saw it moving in a range of $1,600 to $1,800 an ounce.
Gold’s inverse correlation to the dollar index, which broke a key level of support on Friday, has held at around -45 percent for the last week, indicating that the gold price is tending to moving in the opposite direction to the U.S. currency.
While this is normally the case, the unfolding of the euro zone debt crisis last year turned the relationship between the two turn positive for much of 2011 as investors fled the euro and euro-denominated assets.
Markets are attaching lower probability to the U.S. Federal Reserve’s embarking on a fresh round of government-bond buying, or quantitative easing, to keep short-term interest rates low to stimulate growth, and this shift has been a key driver in this month’s fall in the gold price.
“We think that quantitative easing and abnormally low U.S. interest rates have been a huge support for gold prices. It’s no surprise that the falling gold price recently has been accompanied by quite a significant rise in U.S. interest rates,” Nic Brown, head of commodity research at Natixis, said.
Investors in gold via ETFs have cashed in on their positions fairly heavily this week, forcing an outflow of nearly a quarter of a million ounces of gold in just one day, the largest net one-day fall since Dec. 23 2011, and bringing holdings to a one-month low of 70.431 million ounces.
ETP holdings hit a record of nearly 70.9 million ounces on Tuesday, but the past couple of days of outflows have wiped out all of the build-up that had taken place so far in March.
“Yesterday’s decline was the largest outflow since the beginning of the year, which pushed this month’s net position into negative territory: month-to-date, global ETFs are down by 155koz. Indeed, this now raises the question of whether this is the beginning of a much more substantial exit,” Edel Tully, a strategist at UBS, said in a note.
“Right now, we’re paying attention to their behaviour in the short-term, as being the less-fickle investor grouping, their actions emit important signals at a time when confidence in gold is shaky,” she said, referring to the normally longer-term horizon of a typical ETF investor.
Silver took its lead from gold, rising by 1.62 percent to $32.10 an ounce, as did the platinum group metals.
Platinum rose 0.51 percent to $1,622.24 an ounce, while palladium gained 1.05 percent on the day to reach $655.55 an ounce. (Editing by William Hardy and Jane Baird)