Gold futures trimmed their losses around mid-morning Friday as the U.S. dollar gave up some of its early gains and some safe-haven buying perhaps made its way into the gold market.
The metal previously fell to its lowest level in a week overnight as traders bailed out of positions in which they previously bought, exiting as the dollar initially surged and global equities tumbled following news of debt problems in Dubai.
Around 10:44 a.m., EST (1544 GMT), February gold was down $13.20 to $1,175.40 U.S. an ounce on the Comex division of the New York Mercantile Exchange. March silver was down 48.5 cents U.S. to $18.315 U.S.
Overnight weakness was triggered when the Dubai government said it would take charge of restructuring its corporate flagship holding company, Dubai World, and asked creditors to accept delayed payments. Dubai World is reportedly seeking a six-month moratorium on interest payments, during which time it would negotiate with creditors to pare liabilities.
This prompted overnight weakness in global equity markets and a safe-haven move into the dollar. Gold often falls under these circumstances, so the February futures bottomed overnight at $1,135.80 U.S. an ounce, which at the time was a decline of $52.80 from Wednesday's close ahead of American Thanksgiving.
"The euro has come off from $1.51 (the last two days) to a low around $1.4830 (U.S.)," said Andrew Montano, director of precious metals at Scotia Mocatta. "That dollar strength has also been reflected against other currencies like the yen and sterling. Even the Canadian dollar has sold off.
"And gold, being just another currency, has also weakened against the U.S. dollar."
The euro, however, is now up more than a penny from its overnight low and is now trading around $1.4957 U.S. Gold thus is paring its loss also.
"It's all in the currencies, with the dollar also coming off of its highs," said Charles Nedoss, senior market strategist with Olympus Futures.
Technically, gold and silver also held around chart support, he said.
He pointed out that the price volatility is occurring in illiquid trading conditions on a Friday between the U.S. Thanksgiving holiday and a weekend. "Moves are exaggerated on thin days like this," he said.
Gold's overnight losses accelerated on stop-loss selling, said Carl Johansson, analyst with Goldessential.com. Stops are pre-placed orders triggered when certain chart points are hit.
He described much of the selling as "extensive profit-taking," as traders exited positions in which they previously bought at lower prices. Earlier in the week, February gold had hit a Comex most-active-record high of $1,196.80 U.S. an ounce due to dollar weakness and concerns about eventual inflation.
Some analysts predicted Friday's initial selloff would end up being a buying opportunity. A report from Standard Bank said "we would buy this dip" around $1,150 U.S., citing ongoing physical demand and a renewed focus on credit risk.
"Very often, people will flock to gold in times of turmoil, particularly given the amount of volatility we're seeing in the currency markets," said Sterling Smith, commodity trading advisor and market analyst with Country Hedging.
He pointed out that Treasury bonds are not up as much as some might have thought after the Dubai situation. Some money is "finding its way into the gold market" often might go to bonds, Smith said.
Meanwhile, January platinum was down $34.50 to $1,445 U.S. an ounce, while March palladium was down $6.75 to $366.10 U.S.
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