Gold remained near the day's highs on Friday after the dollar weakened against the euro and as investors sought the precious metal's safety after Japan's earthquake and with Middle East violence rising heading into the weekend.
A major earthquake in Japan proved a double-edged sword for gold prices. While investors wanted a tangible asset amid the chaos wreaked by the worst earthquake in Japan, the disaster sent oil prices falling, which lessened the need for gold as a hedge against inflation.
The massive quake pushed US crude prices below $100 a barrel after a 10-meter tsunami shut down dozens of plants in the world's third-largest oil consumer. Spot gold advanced to $1,419.85 an ounce by 3:18 pm EST (2018 GMT), up from $1,412.59 an ounce at Thursday's closing bid. US gold settled at $1,421.80, up $9.30.
Despite gains on Friday, gold booked its deepest weekly loss since mid-January, falling earlier in the week with oil, as some players unwound positions taken out as an inflation hedge when oil prices advanced to highs last seen in 2008. "With the weakness in the dollar now and a lot of the anxiety going into the weekend, I think people want to hold something tangible in their portfolio," said Senior Market Strategist Adam Klopfenstein at Lind-Waldock in Chicago.
The euro rose 1 percent against the US dollar after leaders reached a deal on debt and deficit limits for eurozone countries. Once the euro began its rally, precious metals investors rushed into the market to assure they were not left behind if gold prices should continue climbing over the weekend.
Klopfenstein added that the flare ups in North Africa and the Middle East investors "are looking to precious metals for that anxiety premium, fearing that if they're not long (gold) now they would have to pay a significantly higher price to buy it on Monday." The biggest earthquake to hit Japan since records began 140 years ago struck the north-east coast, triggering a tsunami that swept away everything in its path. Latest, estimates the death toll to exceed 1,000 people.
While analysts said they thought the earthquake in Japan would have little significant impact on gold prices, some said a few investors were impelled to buy out of fear when the death toll, damage assessment and after shocks continued to rise.
Mostly, they said the uncertainty surrounding both the earthquake and Middle East drew investors seeking a tangible investment before leaving for the weekend. "I think it's end-of-the-week activity for gold. The dollar started weakening and after listening to Obama, (Libya) is still a pretty serious situation. I think what we're seeing here is short-covering," said Bill O'Neill, managing partner at LOGIC Advisors in Upper Saddle River, New Jersey.
"The lower oil price takes some of the inflation steam out of the (gold) market," he added. US President Barack Obama said the international community was "tightening the noose" on Muammar Gaddafi, but Libyan rebels said their three-week-old insurrection could fail without a no-fly zone.
In Tripoli, Libyan security forces used tear gas and fired in the air to disperse worshipers near a mosque before they could even attempt any protest, a Libyan said, citing witnesses. In Saudi Arabia police flooded the streets to deter planned demonstrations, and a small Shia protest was reported in the oil-producing east.
While prices ended calmly after a tumultuous day, investors wanted the protection of gold in case of weekend flare ups. Spot silver was at $35.82 an ounce, up from Thursday's closing bid at $35.25 an ounce, having rallied to a 31-year peak above $36 on Monday. Holdings of iShares Silver Trust were unchanged at a record high at 10,974.06 tonnes.
"While clients visited in the US and Canada over the past two weeks mostly wanted to talk about gold, we noted a clear upward shift in their interest in silver," a UBS note said. Spot platinum rallied to $1,779.50 an ounce, from $1,760.24 last on Thursday. But, palladium slipped to $757.50 late on Friday, down from $765.50 on Thursday.
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