Comex gold closed lower in a shortened session on Friday, reversing gains as the dollar shook off a blow from news that the US international trade deficit ballooned in December despite a weak US currency.
The precious metal traded erratically, erasing an overnight loss as the euro rose after the Commerce Department said the trade gap widened some 11 percent to a near-record $42.5 billion, well above the $40 billion expected by economists.
But the dollar rebounded, undermining the bullion buying power of overseas investors, after the euro retested the record high it set last month.
April gold settled down $3.40 at $410.80 an ounce, trading up to $418, a one-month high before falling beneath its low to $407.10.
"If euro held up we would have held up," said James Pogoda, a vice president of precious metals at Mitsubishi International Corp. "From here I wouldn't throw in the towel on gold.
It was a chance to shake out some of the longs and I imagine we'll see some rebuilding of long positions." Spot gold went out at $409.85/0.55, down from $411.75/2.50 late on Thursday. London's late fix was $416.00.
Traders who sold into gold's rally the last two days were squeezed in the not wanting to be caught short at the close of business for the US Presidents Day holiday on Monday, when US financial markets will be closed.
"We're going into a three-day weekend and London is open on Monday.
So a lot of people that are short the market don't want to come on Tuesday and find higher prices," said Donald Tierney of Pell Brothers Futures.
Gold rallied on Wednesday and Thursday after Federal Reserve Chairman Alan Greenspan told US lawmakers the weak dollar could help narrow the yawning US current account deficit.
Even though he said interest rates could not stay at 45-year lows indefinitely with the economy expanding, he suggested there was no rush to tighten because inflation was tame.
This remained a background factor in the euro's rise to $1.2893 on Friday, just below last month's lifetime high at $1.2898.
It fixed at $6.5625 in London. Nymex April platinum slipped $1.70 to $845.60 an ounce.
Spot was last at $846.50/851.50. March palladium fell $4.15 to $244.20 an ounce.
Spot traded at $240.50/246.50.