NEW YORK/LONDON (Reuters) - Gold prices hit a four-week low of $1,109.10 an ounce on Friday, reversing initial gains as upbeat U.S. economic data bolstered the dollar and sent bullion investors racing to cut positions.
Signs of economic uncertainties outside of the United States, highlighted by worries over sovereign debt in Spain and Greece, also boosted the safe-haven dollar and diminished gold’s appeal as an inflation hedge.
“Clearly, dollar strength will make more recent gold buyers wonder if they have done the right thing. The action of investors will depend upon how committed they are to the long-term bull story in gold,” said Rick Bensignor, chief market strategist of broker Execution LLC in New York.
In the past, gold has served as a safe haven in times of economic crisis. However, spot bullion is now trading more than $100 below its record high $1,226.10 reached on December 3, due to liquidation.
Spot gold was at $1,116.15 an ounce at 2:28 p.m. EST (1928 GMT), against $1,130.15 late in New York on Thursday. It rose as high as $1,141.90 an ounce early in trading.
Year to date, gold has still gained 27 percent.
U.S. February gold futures settled down $6.30 at $1,119.90 an ounce on the COMEX division of the NYMEX.
The dollar turned sharply higher against the euro after data showed U.S. retail sales rose more than expected in November, boosting hopes of a self-sustaining economic recovery.
The currency extended gains after a survey showed U.S. consumer sentiment improved in early December.
Year-end book-squaring by institutional investors also added selling pressure in gold, traders said.
“There is position liquidation before the year-end. The big players want to get out of positions and take their profits,” said Miguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management.
Among other commodities, oil prices dropped 1 percent to below $70 a barrel. Gold tends to track crude prices as the metal can be bought as a hedge against oil-led inflation.
Elsewhere a source at the Russian state repository Gokhran said on Friday it was likely to sell 30 tons of gold to the country’s central bank next week. Traders say central bank interest in gold as a reserve asset is growing.
On the physical side of the market, premiums for gold bars firmed in Asia after gold retreated from record highs, while higher Indian jewelry during the wedding season helped offset scrap sales from other Asian holders, dealers said.
China’s Ministry of Industry and Information Technology said on Friday the country produced 26.354 tons of gold in October. Gold output in the first 10 months rose 14.1 percent to 254.552 tons, it added.
China is the world’s main gold producer, and is set to take over from India as the biggest bullion consumer this year as well, according to the World Gold Council.
Among other precious metals, silver was at $17.12 an ounce against $17.37, platinum was at $1,426.50 an ounce against $1,422 and palladium at $359.50 against $362.50.
Reporting by Frank Tang and Jan Harvey; editing by Jim Marshall