Gold Price Settle Lower, Logs Second Straight Weekly Loss

Gold futures settled lower, posting 2.3% weekly loss as stronger dollar, concerns that the Federal Reserve might review its current economic stimulating measures along with lack of demand for safe haven bets in the backdrop of improving economic outlook triggered technical weakness sending prices down to its seven month low level.

Earlier on Wednesday, minutes released from the Federal Reserve’s latest FOMC showed that policymakers had divided opinion over the continuation of the quantitative easing or $85 billion worth monthly bond purchase program. The minutes stoked fears that the Federal Reserve could either scale down or completely halt economic stimulating measures.

Gold futures for April delivery dropped by $5.80, or 0.4%, to close at $1,572.80 an ounce while spot gold last traded near $1,573 an ounce.

Commenting over gold’s downward trend, Julian Phillips, a South Africa-based founder and contributor to GoldForecaster.com said in a research note, “The reason for the fall in the precious metals was primarily the technical picture, with traders and speculators breaking support and causing prices to free fall to these current levels.”

“Interpretations of the Fed minutes were said to be the reason by some,” added Phillips.

Gold having recovered somewhat on Thursday after the U.S. economic data pointed some weakness in business activities and labor market, retreated again on Friday as lack of any major U.S economic data release prompted investors to unwind positions ahead of the weekend while global rally in equity markets also added sell-off pressure.

With S&P 500 index gaining nearly 6% year-to-date and managing to hold above 1,500 level, bullion investors have hardly any incentive to take bullish bets on gold. Notwithstanding some weak economic data on Thursday, the U.S. economy on the whole looks to be in a better shape, which is discouraging investors to take safe haven bets.

“The disappointing U.S. data did not change our view that the U.S. economy is recovering,” said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen on Friday, according to Reuters.

With inflationary pressure also under control in some of the world biggest economies such as the U.S. euro zone and China, metal’s inflation-hedge appeal has evaporated.

Earlier on Thursday the Consumer Price Index showed that inflation was under control despite of extremely dovish monetary policy stance adopted by the Federal Reserve.

“The waning down of the safe-haven play has definitely put pressure on gold, as we have seen the risk-on trade into equities for well over a month now,” said Matthew Schilling, senior commodities trader of futures brokerage RJ O’Brien, in a note to investors.

Strength in the U.S. dollar also weighed on the demand. The ICE dollar Index, a gauge on U.S. unit’s performance against a basket of six major traded currencies, rose to 81.463 on Friday from 81.377 in late North American trade on Thursday.

Typically, a stronger greenback weighs on the demand for commodities since they are dollar-dominated—making them expensive to buy for those traders who deal in currencies other than the U.S. dollar.

Meanwhile investors’ faith in gold backed exchange traded funds continued to vanish this week. A data provided by Thomson Reuters showed that the SPDR Gold Trust (ETF) (NYSE: GLD), world’s largest exchange traded fund, was on course to log biggest weekly outflow since august 2011. Its holdings fell 8.89 tons on Feb. 21 to 1,290.306 tons, the lowest level in more than five month, according to Thomson Reuters.

In some other precious metal markets, silver futures for March delivery edged lower 24 cents, or 0.8%, to settle at $28.46 an ounce,

Platinum futures for April delivery fell $12.60, or 0.8%, to end at $1,607.40 an ounce while palladium futures for March contract gained $1.70, or 0.2%, to close at $735.30 an ounce.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.