January 29, 2010 / 3:05 AM / 10 years ago

Gold falls for third straight week on liquidation

NEW YORK (Reuters) - Gold prices fell on Friday, posting a third straight week of declines as strong economic data boosted the dollar and commodity investors remained cautious of a U.S. proposal to limit bank risks.

A man displays gold bars at SJC gold factory in Ho Chi Minh city January 22, 2010. REUTERS/Kham

The euro hit a rough patch this week against the U.S. currency, tumbling to below $1.39 due to fiscal fears in euro-zone countries and strong U.S. data.

A stronger dollar cuts into bullion’s appeal as a dollar hedge. Gold is down about 2 percent so far in 2010.

“We certainly think the dollar run could go for at least another two or three months, and that could be a negative for gold going forward,” Peter Buchanan, senior economist at CIBC World Markets in Toronto.

Gold has been under additional pressure since U.S. President Barack Obama last week moved to restrict some bank trading operations, including commodities.

Spot gold was at $1,079.05 an ounce at 2:44 p.m. EST, against $1,086.75 late in New York on Thursday.

U.S. April futures settled down $1 at $1,083.80 an ounce on the COMEX division of NYMEX.

The U.S. GDP report showed the economy in the fourth quarter grew at its fastest pace in more than six years, surprising economists.

A stronger economy could prompt real interest rates to rise, said Tobias Merath, head of commodity research of Credit Suisse. This could boost the opportunity cost of holding gold.

“We are now in economic recovery, undoubtedly, and at some point in the recovery real rates will start rising. That could be a trigger for more selling of gold,” Merath said.

Year to date, gold prices were about 2 percent lower from the December 31 close of $1,096.35.

U.S. banks and trading houses have been taking advantage of the price drop to buy call options to profit from possible price increases and rising volatilities, said COMEX floor trader Jonathan Jossen.

In Asia, gold bars were offered at the highest premiums in more than a year as demand from China gained pace ahead of the Lunar New Year, dealers said. <GOL/AS>

But gold is looking vulnerable, according to analysts who study past price moves to determine future trade.

“The close below the 100-day (moving average) at $1,089 is a first since July 2009 and increases the odds for a deeper probe of $1,074/1,067 support — the December lows and ten-month trendline — where we would be looking for basing signs,” said technical analysts at Barclays Capital.


Among other precious metals, silver was at $16.14 an ounce versus $16.20. Platinum was at $1,497 an ounce versus $1,508, and palladium at $411 versus $418.50.

Buying of the platinum group metals to back new U.S. exchange-traded funds tailed off at the beginning of this week, data from ETF Securities, which operates the funds, showed.

ETFS Platinum’s (PPLT.P) holdings unchanged at 214,900 ounces as of January 28, while ETFS Palladium’s (PALL.P) holdings at 399,925 ounces.

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Sentiment had deteriorated earlier this week after news that Toyota Motor Corp, the world’s biggest automaker, is to suspend U.S. sales of eight models due to a safety recall.

Platinum and palladium are heavily exposed to the auto sector, as they are mainly used as components in autocatalysts. A recent Reuters poll showed analysts are positive toward PGMs this year due in part to an expected recovery in car demand.

Additional reporting by Jan Harvey in London; Editing by David Gregorio

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