Gold prices held just below $1,780 an ounce in Europe on Friday, supported by gains in the euro and expectations that monetary policy will remain loose in key economies, but was struggling to maintain traction after this week's already hefty price climb.
Silver rallied to a fresh five-month high after breaking a key technical level, meanwhile.
Spot gold was at $1,778.34 an ounce at 12:37 SA time against $1,779,79 late on Thursday, while US gold futures for February delivery were down $5.70 at $1,780.50.
The euro hit a 2-1/2-month high against the dollar, building on hefty gains it made a day earlier after improved German business sentiment data, and on lingering relief over an agreement for a second bailout of Greece.
A two-day meeting of Group of 20 finance ministers and central bankers this weekend will likely be dominated by talk of the euro zone debt crisis.
LGT Capital Management analyst Bayram Dincer said investors were moving into gold on the back of expectations for further monetary easing in the United States and the euro zone.
“It is really monetary (policy) expectations that are making the investment rationale for gold,” he said.
“It is not our favourite position to go long gold at these high levels,” he added. “Conditional on those expectations, it makes sense, but the potential for disappointment, and price consolidation, is a given.”
Sharper appetite for assets seen as higher risk drove stocks higher in Europe, while safe-haven German government bonds dipped. Oil prices meanwhile extended this week's strong gains as investors fretted over Iranian supply.
Gold has risen 13.7 percent this year, and is heading for its best weekly performance in four, currently up 3.3 percent.
“The latest rebound is starting to run out of steam and we expect the precious complex to start consolidating near current highs,” said VTB Capital analyst Andrey Kryuchenkov in a note.
“US macro numbers remain fairly positive, which continues to limit losses in the dollar and could still see a small scale dollar rebound,” he added. “For sustained gains in gold from here, we would need a much weaker dollar relative to the euro for a sustained period, which is unlikely for now.”
SILVER SHINES
Price strength weighed on physical gold demand, however, as price sensitive buyers, particularly in key Asian markets, held off making purchases.
“While one would not expect strong physical demand as prices push higher, the overall weakness in physical demand of late has caught our attention,” said UBS in a note.
“US Mint sales of American Eagle coins so far this month have fallen dramatically... (while) in India, volumes have eased this week. SGE premiums have been hovering at the lower end of the range, reflecting consistently muted demand out of China post-Lunar New Year.”
Silver prices were up 0.6 percent at $35.54 an ounce, having earlier touched a five-month high at $35.70 an ounce. On Thursday silver's climb picked up momentum after breaking through its 200-day moving average at $34.84.
Prices are up 7.1 percent this week for their best weekly performance since mid-January. It is set for a gain of nearly 30 pct so far this year, making it the best performing precious metal so far in 2012.
“There is key support around $33.60 from the trendline off the December low,” said ScotiaMocatta in a note. “We are bullish so long as we remain above the trendline. The next target is $35.68, the October high.”
The gold/silver ratio, the number of silver ounces needed to buy an ounce of gold, dipped to its lowest since late October on Friday at 50 as silver prices outperformed.
Platinum group metals meanwhile took a breather after hitting their own five-month highs earlier this week after a strike at Impala Platinum's Rustenburg mine, the biggest of its kind, turned violent.
Impala warned customers earlier this week that its April platinum deliveries would be down about 50 percent due to labour problems at Rustenburg.
Spot platinum was down 0.2 percent at $1,715.49 an ounce, while spot palladium was down 0.4 percent at $714.22 an ounce. - Reuters