US gold futures ended 2 percent lower on Friday, capping a volatile week of selling, as a lack of confidence in the financial system and a dollar rally triggered heavy liquidation by commodity funds.
GOLD: December gold settled down $16.80, or 2.1 percent, at $787.70 an ounce on the COMEX division of the New York Mercantile Exchange. Futures traded in a near $50 range. December briefly dropped to a one-month low of $772.20. It hit a high of $816.90.
Weak US economic data and a recent sharp drop of crude oil prices lessened fears of inflation, hurting gold's status as a hedge against a continual rise of the price level - analysts. US home construction fell to its worst level in 17-1/2 years amid signs of a deepening world financial crisis, and gold tumbled to session lows following the news.
Recent huge price volatility of gold took a toll on investment interest, triggering margin calls and massive liquidation in the gold market - Leonard Kaplan, president of Prospector Asset Management. The gold futures market remained quiet most of this week, and prices could drop suddenly in illiquid electronic trade - Kaplan.
Pre-weekend selling, unwinding of commodity positions by hedge funds and trades, and deflationary forces cited for gold's decline - RBC Capital Markets Global Futures Vice President George Gero. Gold futures weakened due to recent sharp drop of open interest, and the decline was largely not influenced by movements in other markets - brokers.
Investor demand slipped as bullion holdings by SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 10.72 tonnes to 756.86 tonnes on October 16. Hundreds of executives, fund managers, traders, analysts and key personnel from the metals industry are in London this week for the annual London Metal Exchange (LME) dinner and associated events.
COMEX estimated final volume at 108,467 lots, and options turnover at 20,461 lots. COMEX gold open interest up 8,016 lots to 329,427 lots, signalling short sellers are returning, and more selling by hedge funds could be seen next week - RBC Capital Markets Global Futures Vice President George Gero.
Spot gold was at $785.80/788.80 an ounce at 2:23 pm EDT (1823 GMT), down 2.3 percent from Thursday's nominal close of $804.50. The afternoon fix in London set at $784.50 per ounce.
SILVER: Silver stayed below $10 an ounce. December silver ended down 30.00 cents, or 3.1 percent, at $9.335 an ounce, near a contract low of $9.090. December silver hit a high of $9.930 an ounce.
Futures dropped sharply as recession fears hurt demand for economically sensitive silver, which has the characteristics of both precious and industrial metals. COMEX estimated final volume at 22,617 lots. Spot silver at $9.36/9.46, down 2.9 percent from Thursday's nominal close of $9.63.
PLATINUM: NYMEX January platinum finished down $10.30, or 1.2 percent, at $881.00 an ounce, extending recent sharp losses. Buyers were largely absent in relatively thin PGM futures market as big firms were pulling out of commodities and opted for cash - traders.
Platinum group metals sold off based on expectations of sustained weakness in auto sales. Spot platinum at $862.00/882.00. December palladium closed up $1.40 at $174.50 an ounce, on bargain hunting after hitting a contract low on Thursday. Spot palladium at $170.50/178.50.