Gold surrendered some of its early gains on Friday as the dollar lifted from lows, but precious metals prices remained underpinned as buyers sought bargains after the hefty price drop of the last two days. Commodities were hit by broad-based selling on Thursday on growth concerns and a rally in the US currency, which made dollar-priced assets more expensive.
Silver was the biggest faller among precious metals, down 11 percent over two days. An early retreat in the dollar has arrested those losses, however. Spot gold was bid at $1,504.60 an ounce at 1138 GMT against $1,502.35 late in New York on Thursday, having earlier risen as high as $1,516.40. US gold futures for June delivery eased $2.30 an ounce to $1,504.50. Silver was at $35.20 an ounce against $34.60.
"We had huge volatility yesterday in all commodities, notably oil and silver," said Credit Agricole analyst Robin Bhar. "I get the feeling the whole market is reassessing the dollar view after months of relative weakness." "Maybe a dollar resurgence will cap rallies in gold, but there will still be underlying interest for gold as a safe haven and a store of value, particularly with the ongoing talks in the eurozone about further bailouts (and) debt restructuring."
The euro benefited from strong growth data in France and Germany, which supported the view that a healthy eurozone economy would keep interest rates in the region higher than those in the United States. German gross domestic product rose 1.5 percent in the first three months of 2011 from the quarter before, above forecasts for a 0.9 percent rise, while French GDP rose 1.0 percent. German Bunds fell, reflecting firmer risk appetite in Europe.
A report showing US consumer prices rose as expected in April on higher food and energy prices also weighed on the dollar, as there was little sign of a broader inflation pick-up that would trouble the Federal Reserve. But softer investment interest in gold was reflected in a fresh outflow in holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust. The trust reported a seven-tonne outflow of bullion on Thursday.
The fund's gold holdings have fallen by 36.5 tonnes so far this month, and are down 87.6 tonnes since the beginning of the year, worth some $4.264 billion at today's prices. The largest silver ETF, the iShares Silver Trust, reported its holdings slipped another 24.3 tonnes on Thursday. Although silver is outperforming other precious metals on Friday, it is expected to suffer further losses. "Silver prices have been volatile with wide price swings occurring almost every day this month," said HSBC analyst Jim Steel in a note.
"We still look for silver to stabilise but believe that silver price will weaken relative to gold prices, based on rapid increases insilver mine supply. We anticipate the silver/gold ratio will trade back up to 1:50 from its current 44:1." The Shanghai Gold Exchange said on Friday it will cut silver margin requirements back to 18 percent from 19 percent from May 13 settlements if there is no sharp movement in prices.
The surge in speculative silver trade in Shanghai is being blamed for the rapid rise and subsequent crash in silver prices over the year. Platinum was at $1,764.50 an ounce against $1,762.15, while palladium was at $710.30 against $710.90. London Platinum Week starts on Monday, bringing together industry players from across the world.