Gold fell on Friday, coming under pressure from the weakness in the euro on the back of the discord among European leaders on how to contain the debt crisis, in spite of global holdings of metal in exchange-traded funds hitting a fresh record high.
Yields on Italian 2-year bonds rose to fresh euro-area highs, in spite of the European Central Bank's efforts to contain the rise by buying Italian debt, while the euro fell to its weakest in nearly two months against the dollar and the yen.
Talks by the heads of Germany, France and Italy on Thursday were overshadowed by German Chancellor Angela Merkel's determined opposition to a joint euro zone bond and a bigger role for the European Central Bank to deal with the crisis.
Demand from key consumers such as India was suppressed by the strength of the dollar, which pushed the price of gold in rupees close to all-time highs, thereby reducing a major source of support for the price.
Further evidence of central bank demand for gold, together with a rise in investment in bullion-backed exchange-traded funds to a record high this week highlighted the ongoing desire for bullion against a backdrop of uncertainty.
Spot gold was last indicated at $1,676.39 an ounce at 13:08 SA time, down 1.06 percent on the day and set for a weekly decline of 2.5 percent.
US gold futures for December delivery were down 1.1 percent on the day at $1,677.3 an ounce.
“It's a function of the dollar strength but also with gold so high, especially in Indian rupees, demand in the physical markets has dropped substantially and is not nearly as strong as it was six weeks ago,” Walter de Wet, an analyst at Standard Bank, said.
“That component of support is not there at the moment. I don't think there is resistance because we're not seeing a lot of scrap coming on to the market. But simply, the buying isn't there ... I wouldn't be surprised to see gold a bit lower in the next couple of days,” he said, adding that a move down to $1,650 or below was not out of the question.
The most-active gold future on India's Multi Commodity Exchange hit an all-time high of 29,212 rupees per 10 g on November 15 and was last down 0.2 percent on the day at 28,379.
ETF HOLDINGS HIT RECORD
Global holdings of gold in ETFs, one gauge of investment demand, have risen by more than 300,000 ounces this week to hit an all-time high of 69.978 million ounces, following hefty inflows into large US funds such as the SPDR Gold Trust, the world's largest, and COMEX Gold Trust.
UBS said purchases of gold by central banks, which last year became net buyers for the first time in two decades, increased again in October.
“The official sector continued to add to gold reserves in October, with a net purchase of 21 tonnes, according to wire reports citing IMF data. This brings our year-to-date tally to 356 tonnes, from 335 tonnes at end-September,” wrote UBS strategist Edel Tully, in a note.
“Given gold's much more attractive levels in October, we would not be surprised if a similar trend of significantly more buying than is reflected by IMF data actually occurred during the month,” she added.
China and India are widely believed to be prime candidates for adding to their gold holdings, given the size of their foreign exchange reserves.
Silver fell 1.7 percent on the day to trade at $31.16 an ounce. The silver price, which often moves in tandem with gold, is set for a 3.3 percent fall this week and a near-9 percent fall in November.
The gold/silver ratio, which measures the number of ounces of silver needed to buy one ounce of gold, has risen by four weeks in a row to 53.93, its highest since early October, indicating gold's outperformance relative to that of silver.
Platinum and palladium were down between 0.8 and 1.0 percent on the day. Platinum was last at $1,524.24 an ounce and palladium was at $569.00. - Reuters