MW: Gold eases on dollar gains, heads for weekly fall
LONDON: Gold eased on Friday, under the weight of the stronger dollar, and was set for its largest weekly decline since mid-December after an aggressive sell-off earlier in the week, although investors showed no loss of appetite for the metal.
The strength in the dollar, which rose to nine-month highs against the yen and gained against the euro posed a headwind to gold, which tends to move inversely to the greenback as non-U.S. investors can achieve more of a profit on their bullion holdings in their own currencies.
Gold is set for its largest weekly fall since mid-December after coming under intense pressure on the US futures market on Wednesday. Federal Reserve Chairman Ben Bernanke issued a downbeat assessment of the US economy and reiterated the central bank's commitment to keeping benchmark interest rates near zero until at least late 2014.
No explicit sign from the Fed on the use of additional policy tools such as quantitative easing or anchoring longer-term bond yields to promote growth triggered the biggest sell-off in gold in 2-1/2 months. Yet analysts and investors believe that gold has enough positive drivers to sustain the market over the coming year, which could see the price make new highs.
Spot gold was indicated 0.1 percent lower on the day at $1,715.30 an ounce by 1115 GMT, heading for a 3 percent decline this week.
"In the shorter term, we could see further weakness and we do advise our clients not to try to catch a falling knife," said Mark O'Byrne, director at online bullion market Goldcore. "We would wait until we have more clarity about the shorter-term outlook, but our medium- to long-term outlook is still positive on gold."
Highlighting the resilience of investors, holdings of gold in the world's largest exchange-traded products, one gauge for tracking shorter-term shifts in investor appetite for bullion, hit a record high above 70.76 million ounces, having witnessed their largest net inflows this week since early January.
"The broader macro backdrop remains gold-favourable, given the negative interest rate environment, longer-term inflationary concerns and lingering sovereign debt uncertainties," Barclays Capital said in a research note. But dollar strength, broad risk reduction and profit-taking could pose near-term hurdles for gold, it added.
