Gold Heads for Second Weekly Loss, Tracks Stocks

October 19, 2012 at 12:05

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Gold prices eased on Friday, on track for a second consecutive weekly loss, as stock markets weakened and the dollar firmed, with many traders opting to stay on the sidelines ahead of the conclusion of a European Union summit in Brussels.

European leaders at the meeting made some progress towards establishing a single banking supervisor for the currency bloc on Thursday, but as expected talked little about immediate plans for debt-laden Spain and Greece.

Unexpectedly weak results from Google dragged down equities, while the euro fell 0.1 percent against the dollar as a perceived lack of progress on a Spanish bailout request curbed demand.

That weighed on gold, which becomes more expensive for holders of other currencies when the dollar firms.

“The EU leaders’ summit delivered very little except the banking union, there is nothing to suggest that the euro will be stronger than the dollar going forward, and that’s the problem,” VTB Capital analyst Andrey Kryuchenkov said.

“There are all relative trades and it’s about who is ahead of the curve, the European Central Bank or the Fed, with liquidity injections and inflation expectations.”

Gold traders waited for fresh impetus from leaders at the EU summit, and possibly U.S. economic data on September existing home sales and weekly economic activity due later in the day.

Stronger than expected U.S data has weighed on gold in the last week by prompting some to question how far the Federal Reserve will have to extend its planned quantitative easing programme, a package of potentially inflationary stimulus measures which have driven the bulk of gold’s gains.

“The path of least resistance for gold appears lower, at least in the near term,” HSBC said in a note. “We do not see a compelling reason for sharply lower prices, but the market may drift lower, as trading volume in recent days has been light.”

“In the absence of a convincing reason to rally, short-term investors may take the opportunity to sell before the weekend, especially if coming economic data continue to be positive.”

From a technical perspective, gold has found support at$1,732, a key 23.6 percent retracement level of the rally from its late May low of the year to its October high, and just above its low for the week and 10-day moving average at $1,729.

“Gold has some support at $1,735 and again at the week’s low at $1,729, but a failure here will likely send the yellow metal spiraling downward, as many of the new longs will stop themselves out,” Commerzbank said in a note.

Gold Fields, the world’s fourth largest bullion producer, said on Friday that the striking workers at its KDC West mine in South Africa have returned to work, ending a month-long strike at the operation.

About 1,500 employees who did not report for work before Thursday’s deadline were dismissed, but have until noon on Friday to appeal their dismissal.

Number three platinum producer Lonmin also said its operations in South Africa were back to normal after about 4,000 employees walked out a day earlier.

A wave of strikes has hit the South African mining sector since unrest at Lonmin’s Marikana mine led to the police killing of 34 miners on Aug. 16, the bloodiest such incident since the end of apartheid in 1994.