Kristian Rouz – Gold prices declined 1 percent in Friday's trading after a robust rally earlier in the week, supported by a series of statement from US Federal Reserve officials pointing to a possible rate cut coming up.
However, Friday's reversal saw bullion investors taking profits and seeking higher profitability elsewhere amid signs the global economy may be not as weak as previously believed.
According to market data, gold dropped by as much as 1.5 percent to $1,424/oz in afternoon trading, after briefly touching $1,452/oz., its highest since May 2013. Gold futures in the US market retreated 0.1 percent for the day on Friday to $1,426.70/oz.
However, bullion prices are still up for the week, after a 3-percent rally on Wednesday and Thursday, as the expectations of a Fed rate cut were interpreted by market participants as a leading to possible weakening of the US dollar, and a drop in the value of Treasury bonds.
Amid the latest signals from the Fed, investors sought safety in gold; however, it remains unclear if the rally would sustain momentum going forward after Friday's retreat.
“Speculators and traders are taking some profits off the table after the good gains we had in the past two days. Also, there is always a little bit of pressure on gold when the dollar is up,” Michael Matousek of US Global Investors said.
Both gold and silver, along with a handful of other precious metals, are seen as safe-haven assets. These go up in price during periods of high market volatility, or amid elevated expectations of other 'haven' assets losing value. The latter appears to be behind the latest rally in gold prices, which also saw silver breaking through its one-year high in recent days.
Experts say geostrategic tensions might have played their role as well, as the ongoing diplomatic and military standoff involving Iran has fuelled the anticipation of global oil prices going up. However, despite Iran having seized several foreign oil-tankers on Friday, gold reversed its gains, suggesting politics have less of an impact on bullion prices than some may have imagined.
“News of the US Navy shooting down an Iranian drone always adds fuel to the market, but the underlying buying momentum after a break of the $1,425/oz. area has propelled gold back to the next big challenge,” $1,450/oz., Peter Spina of GoldSeek.com says.
Experts also point to an unidentified international entity that was reportedly buying all gold available in the North American market on Thursday, supporting the rally in prices.
Additionally, some market participants say the ongoing decline in long-term government bonds worldwide, and a slow devaluation of major reserve currencies might support gold prices in the near-to-medium term.
A possible new round of monetary easing by the US Fed, the European Central Bank (ECB), and the Bank of Japan (BOJ) adds to the sentiment gold may meet a higher market demand by the end of this year.
“As things stand, these are good times for buck-denominated and non-interest-bearing precious metals,” Fawad Razaqzada of Forex.com said.
Yet, on the other hand, some believe the expectations of strong GDP growth across the advanced economies could hold back the rally in the precious metals, as investors might seek higher profitability in stocks and non-financial sector investments.
Following the prices on gold, platinum also dropped 0.8 percent to $846.98/oz. on Friday, while palladium retreated by 0.8 percent as well, to $1,513.11/oz.