Gold dipped on Friday as the euro fell against the dollar on worries about the outcome of Spain's regional elections and an uncertain Greek debt situation, while options expiry next week also kept prices in a tight range. Bullion has dropped about 5 percent since rallying to a lifetime high near $1,575 an ounce in early May.
Spot gold fell to $1,486.95 before steadying at $1,495.05 at 1441 GMT from $1,491.60 late in New York on Thursday. Silver traded at $34.68 from $34.95, well below a record at $49.51 an ounce in April. "Gold was swept down with the euro," said Tom Kendall of Credit Suisse. "If the dollar is coming stronger in the short term, then gold will trade as a currency and physical buys will lag."
The euro fell against the US dollar on Friday after four straight days of gains, on worries about the outcome of Spain's regional elections this weekend and an uncertain Greek debt situation. Any easing of Greece's fiscal targets would call into doubt both the sustainability of the country's debt and the credibility of future European agreements, Germany's central bank said on Friday.
"We are still chopping around in the same range as we've seen for the past three weeks," Kendall added. "Gold is trading risk on risk off. If Asia wakes up on Monday and the Greek concerns have diminished somewhat and people are feeling chipper about the world, everything will start to weaken, the dollar will come off.. and gold will start looking perky again," he said.
Gold's correlation with the dollar has been robust in recent weeks, and the dollar's advance this past week has created headwinds for the metal. A stronger dollar makes gold more expensive for holders of other currencies. Comex options expiry next week were also keeping prices hemmed in around the $1,500 mark, Kendall said. "We've only got three days to options expiry next week and there is some sizeable open interest in June $1,500 calls."
Prices tend to gravitate towards large pools of open interest as options expire. On the charts, gold appears to be breaking out to the upside, said fund manager Dennis Gartman of industry newsletter TheGartmanLetter in a note. "Gold's been given every opportunity to break this week, and it has refused to do so, and now it appears in the process of breaking out to the upside instead. We are much impressed ... enough so to add to our gold positions," he said.
Silver has been supported by retail investor interest, but following recent losses some investors are still choosing to cut their losses, said FastMarkets in a note. "The drop in iShare silver holdings yesterday again implies speculative investors are opting to improve their cash positions following recent volatility and margin increases, and suggests rallies will continue to prompt bouts of long liquidation, with broad range trade to continue ahead of the next round of key economic data indicators." Holdings of the largest silver-backed exchange-traded-fund (ETF), New York's iShares Silver Trust, dropped 2.32 percent on Thursday from Wednesday.
In other metals, platinum traded at $1,759.74 an ounce from $1,762.50, while palladium changed hands at $728.25 from $724. Top world palladium producer Norilsk Nickel expects existing global stocks to offset a production decline of "several percent" and will not cause a deficit, the company's head of sales told Reuters.