NEW YORK / LONDON, (Reuters) – Gold fell 1 percent on Friday on thin participation from U.S. investors after Thursday’s Thanksgiving holiday and two-month highs in the dollar, which weighed on the yellow metal’s position as a currency alternative.
Gold bullion fetched bids at just over $1,363 an ounce late afternoon in New York, versus Thursday’s closing bid of $1,374.12. The intraday low of $1,350.10 held above the key support of $1,350.
Gold futures’ most-active contract in New York, December, settled down $10.60 at $1,362.40 an ounce.
Other precious metals fell too. Silver was down almost 3 percent, palladium 2 percent and platinum about 1 percent.
“Gold’s come off because the dollar’s strengthened,” said David Thurtell, analyst at Citigroup. “If a rescue is done for Ireland, I would think gold will lose some of its bid tone and sell off next week.”
Technical charts and contract options studied by Reuters on Friday showed the euro should extend losses against the dollar in the near term after its worst week in over three months on fears Portugal and Spain will be next to need bailouts after Ireland.
The euro hit a two-month low of $1.3200 against the dollar .DXY and spreads on peripheral euro zone bonds widened against the 10-year German Bund as investors focused on the possibility of euro zone debt crisis spreading.
Even so, Portugal’s parliament on Friday approved the final 2011 budget, aimed at sharply reducing the fiscal deficit. Spain’s Prime Minister Jose Luis Rodriguez Zapatero also ruled out a bailout in the footsteps of Greece and Ireland.
In euro terms, bullion prices had eased to below 1,025 euros an ounce compared with 1,028.76 euros late on Thursday. But it was still firmly above the 1,000 euros mark it fell through on Monday for the first time in a week.
Volume in gold thin futures was particularly thin as U.S. markets observed their traditional abbreviated session on the Friday after Thanksgiving, which is popularly known as “Black Friday.”
By midday in New York, volume in gold futures stood at a paltry 221,000 lots — just about half of the level seen the day after the 2009 Thanksgiving.
“Gold is … not really marching to any drum at the moment,” said Simon Weeks, trader at London’s Scotiamocatta.
“I think it’s just drifting in thin quiet Friday conditions as the currency markets move,” he said, adding that bullion could head lower to between a $1,345 and $1,350 next week.
Besides being a currency alternative, gold also acts as a safe haven in times of political troubles.
But despite the geopolitical tensions after this week’s artillery exchange between North and South Korea, gold has not rallied. Analysts said this may have to do largely with the dollar’s strength, which is undermining gold.
Precious metals are caught between buyers who see them as a hedge against Korean tension and European sovereign debt problems, while others have been selling it on the back of the continued dollar rally,” said Ole Hansen, analyst at Saxo Bank.
Ashraf Laidi, chief market strategist at CMC Markets, said prospects of an interest rate hike in China was also limiting gold’s ability to exploit its position as a safe haven from the Korean tensions and European debt crisis.
Investors are concerned that rate hikes to dampen rising Chinese inflation could severely hit demand for gold and commodities. China is the world’s second-biggest gold consumer after India and the biggest consumer of base metals.
“One of the main differences between today and February-May (during the Greek debt crisis) is that the role of the Chinese tightening stands in the way of any prolonged gold buying,” Laidi said.