Gold falls almost 1.5 percent in end-of-week liquidation

    NEW YORK | Fri Apr 13, 2012 4:31pm EDT
             
               

Gold prices fell almost 1.5 percent on Friday as a stronger dollar sparked a wave of end-of-week selling amid mounting fears about the euro-zone debt crisis and after Chinese economic growth data disappointed investors.

Bullion ended off session lows to finish down 1.2 percent. For the week, it finished up almost 1 percent, its largest weekly rise since the end of February.

But a late afternoon sell-off saw gold prices tumble $10 in a matter of minutes as concerns about the deepening euro-zone debt crisis fuelled end-of-week liquidation. Traders suggested banks may be looking to reduce risk and bolster capital flows.

Spot gold was down 1.22 percent at $1,654.54 an ounce at 2.55 p.m. EDT (1855 GMT), heading for its biggest daily fall since April 4.

U.S. gold futures for June delivery settled down 1.21 percent at $1,660.

Once spot gold broke through $1,657 per oz, there was little technical support, with the next resistance seen around $1,610 per oz. The 300-day moving average is at $1,624 per oz.

Gold came under pressure as the dollar rebounded on worries about Spanish banks and after Chinese growth data disappointed traders.

China reported that its economy in the first quarter grew at its weakest pace in nearly three years, easing to an annual growth rate of 8.1 percent from 8.9 percent in the previous three months.

A stronger dollar tends to weigh on gold, as it makes dollar-priced commodities more expensive for other currency holders, and curbs the metal's appeal as an alternative asset.

U.S. equities fell as concerns about the pace of global growth sparked an end-of-week selloff in financial shares. .N

Traders said selling pressure on gold remained heavy. Frank McGhee, head precious metals trader with Integrated Brokerage Services LLC in Chicago, said $1,610-1,620 "is really the last gasp, but I'm not sure it'll hold up. There's nothing technically between here and $1,550."

A fall to $1,550 would wipe out the year's gains to date.

"Especially in the United States, the investment climate is very neutral towards gold at this stage. People really need to see a policy catalyst before they come back aggressively," Standard Bank analyst Walter de Wet said.

"On the physical side, from the end of this month there is really no seasonal demand coming until August," he added. "It is going to be difficult to break much higher if we don't have this physical buying supporting any investment demand coming through for the next two or three months."

STRUGGLE FOR MOMENTUM

The latest Reuters poll showed analysts turning more cautious toward gold. While analysts still expect the precious metal to rally through this year and into 2013, just one of 33 polled expected it to average more than $2,000 an ounce this year, against five of 45 in a January poll.

"The last six months has seen an increase in correlation between gold and other risk assets," Schroders Private Banking head of asset allocation Robert Farago said. He said that perception makes gold less attractive as a portfolio diversifier.

"I am not convinced that a deflationary environment will prove favorable in the short term," he added. "This would produce a liquidity squeeze and gold may well prove a source of funds since almost all investors are sitting on profits.

Physical buying in Asia's bullion market slowed to a trickle on Friday, as higher prices pushed traders to the sidelines, but a gold-buying festival in India in late April is likely to help bring in some demand from the world's top consumer of the metal.

Silver was down 2.69 percent at 31.45 an ounce, spot platinum was down 0.96 percent at $1,582.74 an ounce and spot palladium was down 1.12 percent at $641.47 an ounce.

CME Group, the biggest operator of U.S. futures exchanges, said it will cut margins for COMEX silver futures for the second time since February in an attempt to boost liquidity after a narrow price range tempered trading interest.