Gold fell to a three-week low on Friday and headed for its worst week since mid-September as upbeat US economic data boosted the dollar, raising anxiety over the Federal Reserve's future monetary policy course. The metal was headed for a 3.4 percent weekly drop, after climbing for two consecutive weeks, as expectations the US Federal Reserve will maintain its economic stimulus seemed to have been factored in.
Spot gold fell as much as 1.3 percent to its lowest since October 17 at $1,305.69 an ounce earlier and was down 1.2 percent at $1,307.36 an ounce by 1520 GMT, extending Thursday's 1.4 percent slide. Comex gold futures for December fell $16.90 to $1,306.90 an ounce. The dollar rose to six-week highs against a basket of currencies, after US data showed the country's manufacturing sector expanded at its fastest pace in 2-1/2 years last month.
The data, coupled with positive US numbers on Thursday and a statement by the Federal Open Market Committee that was not as dovish on the timing for curbing stimulus as investors had expected, soothed some worries about sluggish fourth-quarter growth. Moreover, a sharp slowing in euro zone inflation, which left markets suddenly considering the chance of a cut in interest rates soon by the European Central Bank, weighed on the euro against the dollar.
"A drop in the euro on the back of weaker inflation figures and very good US data has strengthened the dollar, in turn weighing on gold and I wouldn't be surprised to see a drop below $1,300 next week if there's more good data out of the US," Natixis analyst Bernard Dahdah said. As a gauge of investor sentiment, New York's SPDR Gold Trust, the biggest gold-backed ETF, reported an outflow of 34 tonnes in October, its biggest monthly drop since July. That brings its outflows for the year to 479 tonnes, or more than $20 billion this year. Holdings of the fund are near four-year lows of 872 tonnes.
Spot silver was down 0.2 percent to $21.79 an ounce after falling to its lowest since October 17 at $21.66 earlier in the day. It had fallen 3.5 percent on Thursday, its biggest one-day loss in a month. The biggest silver ETF, the iShares Silver Trust, also recorded a monthly outflow of 127.4 tonnes in October, its first since June. Spot platinum fell 0.4 percent to $1,442.50 an ounce, shrugging off news that 7,000 members of South Africa's National Union of Mineworkers will down tools at Northam Platinum on Sunday night in a strike over wages.
Spot palladium fell 0.5 percent at $731.47 an ounce.