US MIDDAY: gold rallies

Gold rallied on Friday after a sharp pullback in the four previous sessions, gaining support from a weaker dollar and short-cover buying, but the metal remained on track for its biggest weekly decline in almost three months. Spot gold rallied as much as 1.96 percent to $1,600.49 per ounce in early trade. US gold rose more than 1 percent to close at $1,597.90 per ounce.
A slightly weaker dollar against a basket of currencies helped precious metals. A softer US currency makes dollar-priced commodities, such as gold, more affordable for holders of other currencies. Bullion was still on track, however, for a 7 percent loss this week, the biggest fall since the end of September, and it remained vulnerable to a deepening eurozone debt crisis and rising funding stress.
"Gold took a beating this week and today bounced a bit as investors see this as a good moment to buy, but it is still vulnerable," Credit Agricole analyst Robin Bhar said. "I expect gold will stay under pressure as the funding stress is increasing the need for liquidity, and gold is seen as one of the assets to liquidate."
The need for cash has overwhelmed gold's traditional status as a safe haven in the past few months, putting the metal on course for its first quarterly fall since end-September 2008 when the global credit crunch was at its worst. Gold has, therefore, benefited recently from developments that have reduced risk aversion and the flight to cash. The metal was supported by better-than-expected US job data on Thursday, which suggested a weak economy is gradually improving and supported financial markets.
It also got a boost after Spain attracted solid demand for its bonds on Thursday, helping to ease concerns the country could be among the next to fall in the eurozone's debt crisis. "At the moment a lot of people are resting their hopes on the fact that physical demand will pull gold back up again, but because of the amount of speculative investment that has gone into this market over the last years, it is obviously exposed on that basis," said Ole Hansen, a senior manager at Saxo Bank.
Gold benefits when central banks print money or cut interest rates or when money managers diversify assets. "With access to liquidity being constrained, market participants have increasing problems to refinance," Credit Suisse said in a research note. In other precious metals, spot silver gained as much as 2.68 percent to trade at $29.97 an ounce, before pulling back to $29.52. Spot platinum rose to a high at $1,436.25, then changed hands at $1,414.25, up from $1,404 at Thursday's close. Palladium climbed to a session high of $632.52 an ounce and then steadied around $620.50.