NEW YORK (Reuters) - Gold fell toward $1,100 an ounce on Friday, losing nearly 2 percent after an interest rate hike in top gold consumer India, and investors cashed in gains from earlier this week ahead of the weekend.
Spot gold’s 1.7 percent decline on Friday was the biggest one-day percentage loss since February 4, when it had lost 4.2 percent.
The precious metal ended the week nearly unchanged. It rose earlier in the week despite a rising dollar, due to fiscal worries about Greece and uncertainty about currencies.
But bullion retreated on Friday as the dollar surged against the euro on nagging worries about Greece and as India’s interest rate hike created economic uncertainty about a country whose gold consumption leads the world.
“The euro went back toward $1.35, which was the main trigger,” said Michael Blumenroth, a senior trader at Deutsche Bank. “The market was very quiet before that, so I think it was taken by surprise.”
He said news that India’s central bank had raised key policy rates by 25 basis points had also probably hit prices.
“A rate hike in any part of the world is bad for the gold market because (it affects) the opportunity cost of holding gold,” he said.
Spot gold was at $1,106.35 an ounce at 2:50 p.m. EDT (1850 GMT), against $1,125.45 late in New York on Thursday.
Earlier in the session, bullion traded as low as $1,100.95. Gold ended the week slightly higher compared with a close of $1,102.05 on March 12.
U.S. gold futures for April delivery on the COMEX division of the NYMEX settled down $19.90, or 1.8 percent, at $1,107.60 an ounce.
The euro fell to its lowest in more than two weeks against the U.S. dollar on Friday, also pressured by weakness in equities. The Dow Jones industrial average is down 0.5 percent, on track to snap an eight-session winning streak. <FRX/>
The single currency has fallen 5.5 percent versus the dollar this year as investors fret over the outlook for Greece. The country said on Thursday it cannot achieve promised deficit cuts if its borrowing costs remain so high, and may have to call in the IMF. [ID:nLDE62H0LL]
The Reserve Bank of India meanwhile increased the repo rate, the rate at which it lends to banks, to 5.00 percent and the reverse repo rate, the rate which it absorbs funds from the system, to 3.50 percent with immediate effect.
Commerzbank analyst Eugen Weinberg said as India is the world’s largest gold buyer, concerns of lower imports and demand from the country would weigh on interest in gold.
Among other commodities, oil fell 2 percent to hold just above $80 a barrel on Friday as the dollar strengthened. <O/R>
Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.
Among other precious metals, silver was at $16.96 an ounce against $17.35.
Among other precious metals, platinum was at $1,603 an ounce against $1,627, while palladium was at $466.50 an ounce against $475 an ounce.
Additional reporting by Jan Harvey in London; Editing by David Gregorio