Comex gold futures finished the week with strong gains after two weeks of steep declines, but because the advance was won primarily on the back of a softer-than-forecast US GDP report, traders said they were not certain that gold prices have seen their near-term bottom.
"Clearly we rallied off the back of the worse-than-expected GDP number, which saw US rates come off about 8 basis points or so. I think they were building too much into the Fed hiking 50 basis points in August as opposed to 25.
And, it's probably as simple as that. We rallied off the back of poor GDP numbers," said a New York gold dealer. But traders said it remained to be seen whether the rally can continue into next week even with gold's definitive close above the key $390 an ounce psychological level.
"I think what happened is that we washed a lot of short-term shorts out of the market," said one trader.
"The only problem I have with (the strong close) boding well for next week is that the dollar strengthened in the last hour or so.
If it was no more than just short covering, then I wouldn't be surprised if we come off again." he said.
Newly most-active December gold futures the New York Mercantile Exchanges Comex division held onto $3.90 per ounce gains to close at $393.70 an ounce.
It soared up to $394.90 after GPS release. The low at $389.70 was left behind. On Friday was first noticing day for the Comex August gold contract, which finished $4.00 higher at $391.0 an ounce.
With rollover business out of the market, Comex estimated gold volume settled back to 53,000 contracts on Friday, well below the 119,563 tally from Thursday.
Open interest rose by 4,208 on Thursday to 226,693. Gold raced to its 3-day high as the dollar rapidly lost ground in response to a weaker-than-forecast US gross domestic product, traders said. And despite the dollar ability to reverse those losses by day's end, gold maintained its hard-won advance.
The dollar climbed against the euro on Fridays afternoon once traders reviewed all the data released on Friday and determined that other economic readings painted a brighter picture than did GDP.
Some dollar traders also decided to look ahead to next weeks US employment report. Analysts look for robust payroll growth in July, and think it may inspire the Federal Reserve to aggressively bump up US interest rates.
But gold maintained its strength into the afternoon, due mainly to covering of short positions, according to one trader. "If they all managed to cover their shorts today and they're done," he said, "we can go back lower again next week."
On Fridays data showed that US gross domestic product grew at an annualised rate of 3 percent in the second quarter of this year, compared with an upwardly revised 4.5 percent clip in the first quarter, as consumer spending cooled to a 1.0 percent increase from a brisk 4.1 percent in the first quarter.
One analyst said he thought the below-forecast GDP indicated "that the growth of the economy moderated, taking pressure off the Federal Reserve to continue raising rates."
Spot gold surged to $391.00/1.50 at Fridays close, up from $387.50/8.00 an ounce late on Thursday in New York. On Friday's afternoon fix in London was $391.40.
Comex September silver charged up on gold's coattails to settle 20.50 cents higher at $6.56 an ounce, in a wide $6.34 to $6.65 an ounce range. Spot silver jumped to $6.52/6.55 an ounce by weeks end, well above $6.30/33 late on Thursday.
On Fridays fix rose to $6.42. Trade in PGMs was subdued. Nymex October platinum was up $0.20 to finish at $817.90 an ounce and traded in a higher range from $808.90 to $819.80. Spot platinum was quoted at $817.50/822.50.
Thinly traded September palladium added $0.95 to close at $217.20 an ounce, in a $214.70 to $219.50 range. Spot palladium finished at $214.50/220.50 an ounce.