Gold posts second weekly loss, technicals weak

A woman touches a 220 kg (485 pounds) gold bar, worth around $7.9 million at today's price, on display at the Jinguashi Gold Ecological Park in Taipei County March 5, 2010.

NEW YORK/LONDON (Reuters) - Gold fell on Friday, pressured by declines in equity markets, technical selling and gains in the dollar to give the metal its second consecutive weekly loss.

Bullion came under pressure as a credit downgrade on Belgium's government debt by the Standard & Poor's and higher yields on Italy's debt sparked a sell off in global markets. The S&P 500 index posted its worst weekly loss in two months.

Gold's technical outlook remained vulnerable as it has failed to close above $1,700 an ounce all week and traded below its 100-day moving average, a key support it held for a month until a breach following Monday's 2.5 percent loss.

"If we don't get substantially higher very quickly, I think we can see a sell off back into the low $1,680s. Buying could dry up very quickly because of the early close in New York," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.

Even though gold has recently followed riskier assets, physical bullion held by global exchange-traded funds rose to a record high this week, indicating some safe-haven buying by jittery investors.

Spot gold was down 0.8 percent at $1,681.29 an ounce by 1:32 p.m. EST, off an early session low of $1,671.59.

U.S. gold futures for December delivery settled down $10.20 at $1,685.70 an ounce.

Despite U.S. COMEX precious metals futures' early market close in observance of Thursday's U.S. Thanksgiving Day holiday, volume was higher than its 30-day norm, preliminary Reuters data shows, reversing a recent weaker trend.

Underpinning bullion's investor sentiment was news that central banks bought nearly 26 tonnes of gold in October, boosted by a nearly 20-tonne purchase by Russia as well as buying from Mexico, Belarus and Colombia, data from the International Monetary Fund showed.

Traders said that gold's losses were limited after France and Germany agreed on Thursday to stop arguing over whether the European Central Bank should do more to help markets.

France has called for the ECB to intervene massively to counter a market stampede out of euro zone government bonds, while Germany said the EU treaty bars it from acting as a lender of last resort.

Dennis Gartman, a veteran trader and market commentator, said gold's market fundamentals were still tenuous so long as Germany kept the ECB from buying European sovereign debt.

The precious metal is used by investors as a store of value against market stimulus programs and money printing by central banks.

In the investment sector, global holdings of gold ETFs have risen by more than 300,000 ounces this week to hit an all-time high of 69.978 million ounces. The increase followed hefty inflows into large U.S. funds such as the SPDR Gold Trust, the world's largest, and COMEX Gold Trust.

Silver fell 2.2 percent to $31.07 an ounce. The silver price, which often moves in tandem with gold, is set for a near-9 percent fall in November.

Platinum eased 0.5 percent at $1,528 an ounce, while palladium fell 2.3 percent to $561.25.

(Additional reporting by Clare Kane in London; editing by Bob Burgdorfer)