LONDON, (Reuters) – Gold prices edged higher in Europe on Friday, supported by the euro’s recovery from a three-week low versus the dollar, and as a further ratings downgrade stoked concerns over euro zone debt.
Fitch Ratings downgraded Portugal’s long-term and local currency ratings by one notch to A-plus late on Thursday, with a negative outlook.
Spot gold was bid at $1,384.25 an ounce at 1430 GMT (9:30 a.m. EST), against $1,379.89 late in New York on Thursday.
Trading is thin as the markets wind down for the Christmas holidays, which begin on Friday afternoon in Europe. Little activity is expected ahead of the break, which lasts until December 29 in many countries.
“Whilst I think we might see gold between now and January 4 down $20, I think that is going to prove to be the baseline,” said ANZ Bank analyst Peter Hillyard. “I think as the market resumes in a proper way in the first week of January, we will see it tracking back through $1,400.”
“There are very real fears that the problems of the euro zone generally are not going to be suddenly swept away,” he added. “All of these are things that make people believe that holding a tangible asset is still the right thing to do.”
The euro steadied on Friday, recovering after hitting its lowest in three weeks versus the dollar, but the currency was still on track for a third consecutive weekly loss.
Gold typically comes under pressure from a softer euro and consequently stronger dollar, but its usual close inverse relationship with the U.S. currency has weakened this year as both assets have benefited from the euro zone debt crisis.
The euro has fallen more than 8 percent this year, while gold prices have risen by more than a quarter.
DEBT CRISIS STILL CENTER STAGE
The single currency managed to shrug off Fitch’s downgrade of Portugal, which analysts said was broadly expected.
However, it is still likely to keep the euro zone debt crisis at center stage heading into the new year, analysts said. European shares dipped on Friday, though they are set to post their best December performance in a decade.
Among other commodities, oil prices climbed to their highest in two years on Friday as the cold snap fueled distillates demand, while copper rose, supported by upbeat U.S. data and supply concerns.
On the investment side of the gold market, the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings slipped to 1,284.973 tones on Thursday
Its holdings have declined by nearly 14 tones so far this week, and are on track for their biggest one-week loss since late July.
From a technical perspective, gold prices remain well supported above the $1,363 level, analysts said, while a break of resistance at $1,408 is likely to send prices back toward December’s record high above $1,430.
“The charts suggest a break-out could be brewing for gold and silver, with the run-up to year end potentially throwing up a few surprises,” said TheBullionDesk.com in a note.
Among other precious metals, silver was bid at $29.21 an ounce against $29.31. The world’s biggest primary silver producer, Mexico’s Fresnillo, said it has no plans to start hedging against silver price changes as shareholders say they prefer exposure to market prices.
Platinum was at $1,712 an ounce against $1,716.50, while palladium was at $749.50 against $750.49.