Gold Prices Settle Slightly Higher; Post Biggest Weekly Loss Since September

Gold prices settled slightly higher on Friday, however, it fell sharply for the week. Gold posted its biggest weekly decline since September as investors sold the precious metal to cover for losses in other markets.

On Friday, gold pared some of its losses from Thursday, rising above its 50-day moving average. However, the gains on Friday were not enough to offset the losses for the week. Gold prices fell 3.5% for the week, the biggest weekly drop in almost two months.

Mark Arbeter, Chief Technical Strategist at S&P Capital IQ, told CNBC that gold has pulled back to strong chart support around $1,700 and its 50-day exponential moving average. Arbeter also said that a lot of times when gold breaks out, to its 50-day before resuming its uptrend.

On Friday, gold prices rose as worries about the euro zone debt crisis, which had heightened on Thursday, eased slightly after reports that European leaders and the International Monetary Fund (IMF) officials discussed ways to provide sufficient resources to contain the euro zone debt crisis. Meanwhile, yields on Spanish and Italian bonds also fell after reports that the European Central Bank (ECB) intervened in the market yet again. However, the ECB continues to reject the idea of acting as a lender of last resort.

The euro zone debt crisis dominated headlines for much of the week and overshadowed some solid economic data released in the U.S. The major concern among investors this week was the euro zone debt crisis, which until now was restricted to peripheral euro zone economies, is spreading to core euro zone economies. Earlier in the week, yields on core euro zone economies for France, Austria and Netherlands rose sharply, raising fear of a contagion. Meanwhile, yields on Spanish and Italian 10-year bonds continued to rise, with Spanish yields climbing to a euro-era high. French borrowing costs also soared to a euro-era high as investors questioned the country’s triple-A rating.

As the debt crisis in the euro zone escalated, pressure on the ECB to act as a lender of last resort increased. However, the central bank continues to reject the idea. This week it purchased some Italian and Spanish debt to calm down markets. However, such sporadic bond purchases are likely to only bring temporary relief to the markets. What market participants are hoping is more concrete action. Germany, meanwhile, continues to reject the idea of the ECB taking a bigger role in containing the debt crisis.

Amid all the gloom in Europe, there were some positive developments in the U.S. this week as the most of the economic data released during the week pointed to a strong recovery.

Spot gold prices slipped 0.2% to $1,724.40 an ounce on Friday after falling 2.50% on Thursday. Gold futures for delivery in December settled $4.90 higher at $1,725.10 an ounce on the Comex division of the New York Mercantile Exchange.

The drop in gold prices this week ended a short rally in the precious metal. Prior to this week’s losses, investors were hoping that gold will once again rise toward September’s all-time high. However, gold’s gains in the recent weeks have confused investors. Gold, which is seen as a safe haven asset, has tracked equities lately, indicating that investors are not looking to buy the previous metal as a hedge against turmoil in global markets.

S&P Capital IQ’s Arbeter said that Thursday’s sharp decline is a common pullback within the confine of an uptrend. The decline on Thursday was biggest single-day drop in almost two months.

Arbeter told CNBC that gold prices are all set to rise to an all-time high of $1,900 an ounce and possibly rally to $2,000 an ounce as the U.S. dollar is topping out after recent gains.

Meanwhile, Michael Matousek, Senior Trader at U.S. Global Investors Inc., told CNBC that going forward for gold, even though its more correlated with other markets because of the fear trade, it still has not broken down technically.

On Friday, silver prices also recovered after Thursday’s huge drop, ending 1.8% higher at $32.26 an ounce. Platinum prices gained 0.5% to $1,585.74 an ounce, while palladium prices dropped 0.9% to $600.10 an ounce.

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.