Gold rose 1 percent on Friday, on track for its biggest one-day gain in almost a month, as higher crude oil prices and a sharp drop in the dollar prompted investors to cover short positions after a sell-off earlier in the week. Bullion is set for its first weekly rise in four weeks. Fading hopes of further US monetary easing had led to weakness in the precious metal, reflected in a huge outflow from bullion exchange-traded funds and some funds exiting the gold trade.
Gold, which was oversold after falling $150 in the last four weeks, rallied after data showed US new home sales fell to a four-month low, a fund manager said. "The jump today is somewhat sparked by the bad home sales, which increased the chance of the Fed bringing easing back to the system, and that's why gold is reacting positively," said James Rife, an assistant portfolio manager at Haber Trilix Advisors, which has $2 billion in assets.
Spot gold was up 1 percent at $1,660.79 an ounce by 12:41 pm EDT (1641 GMT), recovering from a two-month low hit in the previous session. US gold futures for April delivery rose $18.20 to$1,660.70 an ounce in moderate volume. However, momentum weakened somewhat after the metal failed to breach resistance at $1,670, near the highs of its last seven sessions, said Daniel Hwang, senior technical strategist at FOREX.com.
Gold could face strong headwinds between $1,680 and $1,700, where many key moving averages converged after the metal's pullback, Hwang said. The gold price has lost 2 percent so far this month as a shift in investors' perception of the health of the US economy in particular has made so-called safe-haven assets less attractive than stocks or higher-yielding currencies.
The decline in the gold price earlier this week took its toll on investment in exchange-traded funds backed by physical metal, resulting in the largest one-day fall in holdings on Friday in three months. ETF holdings hit a record of nearly 70.9 million ounces on Tuesday, but the past couple of days of outflows have wiped out all of the build-up that had taken place so far in March.
Markets are attaching lower probability to the US Federal Reserve's embarking on a fresh round of government-bond buying, or quantitative easing, to keep short-term interest rates low to stimulate growth. That shift has been a key driver in this month's fall in the gold price.
"We think that quantitative easing and abnormally low US interest rates have been a huge support for gold prices. It's no surprise that the falling gold price recently has been accompanied by quite a significant rise in US interest rates," Nic Brown, head of commodity research at Natixis, said. Silver took its lead from gold, rising 1.8 percent to $32.12 an ounce, as did the platinum group metals. Platinum rose 0.7 percent to $1,625.74 an ounce, while palladium gained 0.8 percent on the day to reach $653.72 an ounce.
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