Gold fell on Friday as investors took profits a day after the precious metal hit a one-month high, and safe-haven buying dried up as a deal between Greece and Cyprus eased fears of an escalating euro zone debt crisis.
Bullion remained on track for a weekly rise of 1 percent, its biggest weekly gain in 2 months, as investors sought safety in the precious metal for most of the week amid worries about whether Cyprus could secure a bailout from the European Union. "The appeal of gold could return after a delay, as occurred in the immediate aftermath of the financial crisis in 2008. But should gold fail to respond, it is running out of catalysts to drive prices higher," said Suki Cooper, precious metals strategist at Barclays Capital.
Silver dropped 1.5 percent, wiping out the previous session's rally. Rebounding equities on Wall Street further pressured bullion after Cyprus agreed with Greece on a take-over of the Greek units of Cypriot banks, ending uncertainty over the fate of those operations.
Spot gold was down 0.4 percent at $1,607.81 an ounce by 12:11 pm EDT (1611 GMT). The metal was still on track for its biggest weekly gain in two months. US gold futures for April delivery were down $6.70 at $1,607.10 an ounce, with trading volume on track to finish below its 250-day average, preliminary Reuters data showed.
Cyprus is scrambling to avoid a meltdown of its banking system and a possible exit from the euro, facing a deadline from the European Union of Monday to raise 5.8 billion euros to secure a 10 billion euro ($13 billion) international lifeline. "The lack of a bailout deal leaves us positive on gold for the short term," said James Steel, chief precious metals analyst at HSBC.
On Thursday, gold hit its highest since February 26 at $1,616.36 an ounce, as the Cyprus crisis helped lift gold out of a downtrend due to an improving economic outlook that sent prices to a seven-month low in February. If a bailout agreement is not reached, analysts said, the metal could again look at piercing resistance at $1,620 an ounce, a price unseen since the end of February. A break above that level could also rekindle enthusiasm in trading.
Silver fell 1.6 percent to $28.66 an ounce. Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.9 tonnes from the previous session to 1,221.26 tonnes on Thursday, the lowest since July 2011. The gold ETF is headed for a 12th week of outflows.
Among platinum group metals, platinum was down 0.1 percent at $1,576.59, while palladium edged up 0.1 percent to $754.47.
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