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Gold Clings to $1700
Gold tried to hold $1700 on Friday, extending gains from the previous session when bullion was boosted by prospects of future interest cuts by the European Central Bank, but the precious metal was headed for its second straight week of decline.
The euro zone economy is likely to further shrink in 2013, the European Central Bank predicted on Thursday, fanning expectations that the bank may cut rates next year in the face of another contraction in the economy.
Monetary easing from central banks has been a key factor driving gold’s nearly 9-percent rise this year. Investors flee to gold when they fear the value of fiat currencies is threatened by rampant cash printing by central banks.
Investors are watching the progress in the talks in Washington on how to avoid an imminent fiscal calamity, as the deadline to avert the $600 billion tax hikes and spending cuts, known as the “fiscal cliff”, looms large.
Though gold fell to a one-month low earlier this week, investors remained confident in the outlook of the precious metal, as they piled into gold-backed exchange-traded funds, whose holdings hit a record high for a second consecutive day.
“Gold’s fundamentals are intact,” said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen. “Investors seem to regard $1,690 as an attractive level to buy gold.”
On the chart, spot gold breached the 100-day moving average, which had been a support level until earlier week. The moving average stood just above $1,701 an ounce.
As prices rebounded, the physical buying that had emerged in the past few days when prices fell below $1,700 dried up.
“People want to minimise their stockpiles before the year end,” said Ronald Leung, a dealer at Lee Cheong Gold Dealers in Hong Kong, adding that premiums were about 70 cents to $1.20 an ounce above London prices.
He warned of a spike in premiums around the year end when refineries outside Asia close for holidays.