Gold heads for third straight week of decline

SINGAPORE (Reuters) - Gold dropped more than half a percent in volatile trade on Friday, heading for its third week of decline after shares fell in Asia, the U.S. dollar firmed, and fears about the health of the global economy lingered.

Bullion has fallen around 5 percent since hitting an 11-month high above $1,795 an ounce in early October after the excitement ignited by the U.S. Federal Reserve's latest programme of purchasing mortgage-backed debt died down.

Although jewellers are likely to chase gold at around $1,700, the market will be volatile before the U.S. presidential election in early November and massive U.S. government spending cuts and tax hikes due next year.

Gold hit a high at $1,714.65 an ounce before slipping to $1,702.96 by 0618 GMT, down $8.23. It fallen to a 7-week low around $1,698 on Wednesday, when the Fed said it was sticking to its plan to keep stimulating growth until the job market improved.

A stronger dollar dragged down gold prices and selling picked up after bullion failed to break through a key resistance of $1,725 an ounce, said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"People are still looking a bit at the downside rather than the upside for the time being, waiting for it to break $1,700. Actually, there are too many longs in the market."

Dealers would keep an eye on the weekly U.S. CFTC commitment of traders figures due at 1930 GMT after last week's data showed hedge funds and other big speculators have cut their bullish bets on U.S. commodities to the lowest levels since the end of August.

U.S. gold for December fell $9.10 an ounce to $1,703.90.

Gold's fall from the peak was also driven by uncertainty related to the so-called "fiscal cliff", automatic spending cuts and tax rises which threaten to send the country back into recession if Congress fails to reach a deficit reduction deal by the end of the year.

Even if a protracted period of negotiations injects a large level of uncertainty into the markets, that could benefit safe-haven assets such as U.S. Treasuries, and therefore the dollar, analysts say.

Investors awaited the release of U.S. third-quarter gross domestic product due later in the day, which could set the tone for the dollar. The annualised rate of growth in the world's largest economy is seen at 1.9 percent, picking up from an anaemic 1.3 percent pace.

"At least we have confirmed the bottom of $1,700. We traded once below that, just briefly, but it looks like after that, there's more buying than selling," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.

"I don't think we are going to see some more panic selling," said Ikemizu, adding that gold could trade in a range of $1,700 to $1,740 next week.

Investors awaited the release of U.S. third-quarter gross domestic product due later in the day, which could set the tone for the dollar. The annualised rate of growth in the world's largest economy is seen at 1.9 percent, picking up from an anaemic 1.3 percent pace.

After drifting lower for much of this week, the euro looked set to finish in the red, due to uncertainty about when Spain will request a bailout and trigger the European Central Bank's bond-buying programme.

IMF Managing Director Christine Lagarde urged world leaders to "do whatever it takes" to rebuild the world's financial system, which is still recovering from the 2007-09 financial crisis and has been further weakened by the euro zone debt crisis.

In other markets, shares and commodities slid on Friday while the yen steadied as investors shunned risk on concerns over corporate earnings, with the region's exporters struggling against shrinking global demand.

PHYSICAL MARKET

The physical market was subdued because of a public holiday in Indonesia, Malaysia and Singapore, but dealers noted purchases from Thailand.

"It's a mixture of buying and selling. There's light buying from Thailand and that's about it. Surprisingly, the demand from India is not there," said a dealer in Singapore, referring to the world's largest consumer.

"In fact, Indian consumers started to sell again when the market was a bit higher. Maybe they will leave it to the last minute before coming back to buy again."

The festival season, traditionally a time to buy gold, is underway in India and will peak with Dhanteras and Diwali next month. Weddings also take place during this period.

Dealers would keep an eye on the weekly U.S. CFTC commitment of traders figures due at 1930 GMT after last week's data showed hedge funds and other big speculators have cut their bullish bets on U.S. commodities to the lowest levels since the end of August.

Source: http://news.yahoo.com/gold-heads-third-straight-week-decline-062937086--finance.html

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