Gold edged higher on Friday in thin pre-Christmas trade as the dollar retreated from this week's 14-year high, tempting some buyers to take advantage of a near 10-month low in prices after six straight weeks of decline. Gold has fallen more than $200 an ounce from the peak it hit after Donald Trump's US presidential election victory on November 8, reaching a low last week of $1,122.35, as his win sparked a dollar rally and drove US Treasury yields higher.
It is down 14 percent this quarter, paring its gain for the year to 6.7 percent. Gold posted its biggest quarterly increase in 30 years between January and March. Spot gold was up 0.3 percent at $1,131.66 an ounce at 1445 GMT, while US gold futures for February delivery were up $2.60 an ounce at $1,133.30. "(Many) traders have closed their books. For them, the year has finished," LBBW analyst Thorsten Proettel said. "With no real political or economic events to shock markets, and with Asian markets seeing dull demand, I would say not much will happen until January. We see gold holding around $1,130."
Gold remains largely driven by currency effects, he added. "The most important drivers for gold right now are the exchange rate from the dollar to the euro, and real US interest rates."
The dollar is just over half a percent off highs hit after this month's Federal Reserve policy meeting, at which the bank surprised markets by indicating interest rates could rise more quickly than expected next year. Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"There is a risk that the prices of gold and silver might fall further in the short term as the Fed hikes rates more aggressively in response to some of Trump's more inflationary policies," Capital Economics said in a weekly note. Buying in India remained subdued this week despite a sharp fall in prices as a severe cash crunch and holidays kept purchasers away from the market, while premiums in China fell from near three-year highs touched in the prior week.
Investors also showed little appetite for gold. Holdings of the world's largest gold-backed exchange-traded fund have fallen more than 12 percent since November. Silver was down 0.4 percent at $15.71, while platinum was 0.1 percent lower at $901.40 an ounce and palladium was down 0.3 percent at $652.75.