Gold up but still on track for big weekly fall

Gold rallied on Friday after a sharp pullback in the four previous sessions, gaining support from a weaker dollar, but the metal remained headed for its biggest weekly fall in almost three months. Spot gold rallied as much as 1.96 percent to $1,600.49 per ounce and then traded at $1,585.99 by 1432 GMT, off a 2-1/2-month low of 1,560.36 hit in the previous session.
US gold rose about 1 percent to $1,588.40 per ounce. A slightly weaker dollar against a basket of currency was 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 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 got also got a boost, along with financial markets, 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 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 has received a lot of new followers over the last few years because of its long-term trend, and if we should see a failure to recover, investors might say, 'Look I lost a lot of money and I don't dare to try once again', so it very much depends on what prices will do over the next couple of weeks."
Gold benefits when central banks print money or cut interest rates or when money mangers diversify assets. "With access to liquidity being constrained, market participants have increasing problems to refinance," Credit Suisse said in a research note. "As a result they have to sell their assets - including precious metals - to raise the much needed cash. This is the main reason why gold prices fall on days of increasing funding stress."
In other precious metals, spot silver gained as much as 2.68 percent to trade at $29.90 an ounce, before easing to $29.44. Spot platinum rose as 1.76 percent to $1,428.80, before trading at $1,418.50. Palladium climbed more than 2 percent to a session high of $627.5 an ounce and then eased to $622. "As well as tracking gold, for platinum and palladium there are fears over weak industrial growth, and they may be hit harder as people look to liquidate risk," Bhar said.