NEW YORK/LONDON (Reuters) - Gold dropped on Friday on a dollar rally as worries for debt-stricken Greece and a surprise move by China to tighten money supply took a toll on sentiment.
For the week, the precious metal was 2 percent higher, partially recovering from a two-day sell-off late last week driven by technical weakness and heightened fiscal fears for some European countries.
James Steel, chief commodities analyst at HSBC in New York, said gold held up relatively well against strong headwinds, and that the metal was poised to rise above $1,100 an ounce next week.
“The gold market has been hit by some very negative news — the Chinese monetary tightening and further unwinding of the carry trade related to uncertainty over Greece,” Steel said.
Spot gold was at $1,092.10 an ounce at 3:27 p.m. EST against $1,095.85 late in New York on Thursday.
U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange settled $4.70 down at $1,090 an ounce.
China raised the level of reserves banks must hold for the second time this year, spooking global financial markets because of suggestions it may be reigning in demand.
Michael Widmer, an analyst at Bank of America-Merrill Lynch in London, said gold was coming under pressure as the dollar appreciated broadly in reaction to the China news.
“We always see that when the markets sell off on the back of a macro event, gold sells off along with those,” he said.
The euro fell sharply against the dollar on Friday as questions persisted about a rescue deal for Greece.
Strength in the U.S. unit curbs gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
Other commodities also declined, with oil tumbling 1.5 percent to $74 a barrel, and base metals copper and zinc also falling sharply.
EURO-PRICED GOLD IN FOCUS
Gold priced in euros performed particularly well on Thursday, rising 2.8 percent to a peak of 802.73 euros an ounce, within 10 euros of the record high it hit in December.
The metal eased on Friday to 802.01 euros an ounce from 799.49 late in the last session, but from a technical viewpoint it is well positioned to make fresh gains, analysts said.
“Since early December, gold denominated in euros has been locked in a well-defined contracting range,” said technical analysts at Barclays Capital. “Now that range is on the verge of giving way for a resumption of the larger bull trend.”
On the supply side, the head of the Russian Gold Industrialists’ Union lobby group said Russia may lift gold output to 207 tonnes this year from 205 tonnes in 2009, with mine output rising 5 tonnes to 183 tonnes.
Among other precious metals, silver was at $15.48 an ounce against $15.64. Platinum was at $1,512.50 an ounce against $1,528 and palladium at $414.50 against
Reporting by Frank Tang and Jan Harvey in London; Editing by Carole Vaporean