Traders booked profits in gold futures Friday, resulting in a lower close one day after the metal ran to its strongest level in more than half of a year.
Nevertheless, observers describe the market as remaining in its recent uptrend technically, with flight-to-safety buying likely to continue amid general economic and financial-sector uncertainty.
April gold slipped $7 to $942.20 an ounce on the Comex division of the New York Mercantile Exchange.
"It's just plain profit-taking," said Ira Epstein, CEO with Ira Epstein & Co. Futures.
This is especially the case ahead of the upcoming three-day Presidents Day weekend in the U.S., as some participants captured their profit in case the market should work against them while they are away, said Epstein and others.
One trader added that some type of correction could have been expected anyway, since a sharp run-up in the metal carried the April futures to a $954 peak Thursday that was its strongest level in more than half a year.
Otherwise, nothing appears to have changed fundamentally, Epstein said. There is probably limited downside potential in the near term, he added, with the flight-to-safety mentality likely to continue for now.
"Until the stock market starts forming a bottom, the safe-haven status remains in the gold," he said.
Some of the weakness may have been related to sell stops, Epstein said.
"People buying the market this week in the $940s thinking the market was going to continue running up probably got themselves caught," he said. "There was probably some margin-call money coming out of the market."
For some participants, the pullback from Thursday's high to Friday's low might have amounted to around $2,000 per futures contract.
"That's an awful lot for a lot of traders," Epstein said. "But it didn't change the trend. Nothing was violated on the charts. So the trend remains up."
The market held above the roughly $930-$931 breakout level from earlier in the week, the area around the previous 2009 highs. April gold also remains above a trendline from the March through the July lows, which currently passes through roughly the $928 region.
Another trader commented further consolidation lower could occur in the near term, but this may be met again by the past tendency in which investors use retracements in the gold market as a buying opportunity.
"Considering deteriorating financial-market conditions, more and more people are coming to the conclusion that stimulus programs won't have any substantial effect," he said. "People are looking for a safe-haven where they can park their money. That is gold."
Silver held up better than gold, Epstein said. March silver rose 11.5 cents to $13.625.
The metal may be drawing some support from hopes the U.S. economic-stimulus plan can help revive the economy.
"If industry picks up, silver demand should pick up rather strongly," Epstein said. Likewise, if stimulus efforts should eventually trigger inflation that supports gold, silver would benefit from this, Epstein said. The stimulus plan also helped put an effective floor in Comex copper around $1.35 a pound lately, Epstein added.
Meanwhile, April platinum fell $16.90 to $1,061 an ounce after this week hitting its highest level since September.
"It's just a little profit taking," said a trader. "It's relatively quiet."
March palladium, which did not rise as dramatically as platinum lately, held up better and settled steady at $216.50.
Settlements (includes open-outcry and electronic trading):
London PM Gold Fix: $935.50 versus $943.25 Thursday
Spot gold at 1:30 p.m. ET: $940.80, down $6.20 from previous day; Range: $932.85-$945.50
April gold: $942.20, down $7; Range $933-$946.90
March silver: $13.625, up 11.5 cents; Range $13.22-$13.685
April platinum: $1,061, down $16.90; Range $1,056.50-$1,076.20
March palladium: $216.50, steady; Range $213.80-$218.50
