Gold prices fell on Friday, breaking ranks with the euro, as sharp gains from earlier in the week based on economic optimism and a Greek bailout deal prompted investors to take profits. Silver touched a five-month high after climbing past its 200-day moving average. Analysts, however, said it looks vulnerable for a pullback after the sharp rise.
Bullion is on track for its first weekly rise in four weeks, as expectations for further easing by China and a near-zero interest-rate outlook for the next several years boosted the metal's inflation-hedge appeal. News that Europe sealed a rescue package for Greece to avert an imminent chaotic default lifted gold along with the euro and other riskier assets. Other investors also bought gold on lingering doubts about Greece's ability to implement deep cuts. "When the debt crisis showed signs of easing, people started to look at gold's correlation with the equity market," said Min Tang-Varner, securities analyst at investment research firm Morningstar.
Spot gold was down 0.2 percent at $1,776.21 an ounce by 11:54 am EST (1654 GMT), heading for a three-percent rise for the week. The metal is also set for its second consecutive monthly gain after it flirted with entering a bear market in late December. US gold futures for April delivery were down $8.40 an ounce at $1,777.90. Gold has risen 13.5 percent this year. However, it appears to struggle to gain further to approach its record at $1,920.30 an ounce.
"It is not our favourite position to go long gold at these high levels," LGT Capital Management analyst Bayram Dincer said. Silver touched a four-month high of $35.70 an ounce, as its rally picked up momentum after breaking through its 200-day moving average at $34.84 on Thursday. It was up 0.3 percent at $35.45 an ounce.
Silver prices are up nearly 7 percent this week for their best weekly performance since mid-January. It is set for a gain of nearly 30 percent so far this year, making it the best performing precious metal so far in 2012. The gold/silver ratio, the number of silver ounces needed to buy an ounce of gold, dipped to 50 on Friday, its lowest since late October, as silver prices outperformed.
"Silver looks like it is rallying more with gold than on its own merit, in our view. This may leave it open for a pullback," said James Steel, chief commodity analyst at HSBC. Spot platinum was down 0.1 percent at $1,716.49 an ounce, while spot palladium was down 0.5 percent at $712.54 an ounce.