Gold fell in Europe on Friday after China’s central bank raised lenders’ reserve requirements, with softer haven demand for the metal after solid bond sales by Portugal and Spain also weighing on prices.
The metal pared losses as the dollar surrendered ground to the euro after US data showed a below-consensus rise in retail sales last month, but struggled to gain traction.
Spot gold was bid at $1,361.59 an ounce at 1351 GMT, against $1,372.75 late in New York on Thursday, having earlier hit a low of $1,360.00. US gold futures for February delivery fell $25.90 an ounce to $1,361.10.
Gold prices rallied above $1,390 an ounce on Thursday, its highest this year, before turning lower to drop nearly 1 percent on the day. It has since retreated further.
“The rally we saw yesterday apparently drew out a few nervous longs who had been waiting for an opportunity to scale back positions,” said Ole Hansen, senior manager at Saxo Bank. “It looks like attention (for now) has turned to other markets like stocks and cyclicals.”
“The overall scenario has not changed but it looks like we are settling in for a bit of range trading here — $1,350/1,400 gold and $28/30 on silver,” he added.
“Stops are probably building up below those two levels, so they will be critical in the days ahead.”
Gold dropped after China’s central bank raised lenders’ required reserves for the fourth time in just over two months on Friday, making good on its vow that inflation fighting will be a top priority for the year.
Gold is sometimes seen as a hedge against rising inflation, and also benefits widely from a low interest rate environment. Additional factors are also pressuring gold, analysts said.
“China’s move of course has consequences for the gold market, but it is not (just) China that is playing a role,” said Peter Fertig, a consultant at Quantitative Commodity Research. “After yesterday’s ECB conference the market is also concerned that the ECB might hike rates earlier than previously assumed.”
EURO FACES SHORT-TERM PRESSURES
The European Central Bank said on Thursday that the euro zone faces short-term price pressures which may linger, showing it could raise interest rates to contain inflation even while the bloc is gripped by a debt crisis.
Worries over certain euro zone countries’ debt levels can work two ways for gold, lifting prices as investors choose gold as a haven from risk, but weighing on them via the pressure they exert on the euro.
Traders in Asia reported strong physical gold buying, particularly from China, on Friday, but large bullion-backed exchange-traded funds continued to see outflows.
Holdings of the world’s largest gold ETF, New York’s SPDR Gold Trust, fell by more than 6 tonnes on Thursday and are down more than 15 tonnes so far this year.
Among other precious metals, spot silver was bid at $28.39 an ounce against $28.67.
The gold-silver ratio the number of ounces of silver needed to buy an ounce of gold rose to a one-month high on Friday at just below 48, showing that silver, as is typical, is underperforming gold in a falling market.
Platinum was at $1,801.74 an ounce against $1,799.99, while palladium was at $788.22 against $803.75.