LONDON – Gold languished near one-month lows in Europe on Friday afternoon, as a strong dollar weighed on the precious metal that only a week ago hit eight-month highs, traders said.
A firm U.S. currency usually weighs on gold, which is mostly priced in dollars globally, because it becomes costlier in key overseas trading areas like Europe and Asia.
By 1429 GMT, modest short-covering had lifted spot gold to $438.40/439.20 after it earlier briefly pierced the key chart point of $438.00 to hit a one-week low of $437.50. Prices were down on Thursday when gold stood at $439.20/440.00 late in New York.
"The outlook seems to be towards $434.00, now that we are below the breakout support level, with the risk that a turning oil price or euro sentiment changes the gold market mood," Julia Hamblett of Dresdner Kleinwort Wasserstein said in a daily report.
The dollar traded at its highest level versus the euro in more than two weeks on Friday, holding on to gains made after a robust U.S. factory survey backed views the Federal Reserve will keep raising interest rates.
The Philadelphia Federal Reserve said on Thursday its business activity index jumped in August to the highest reading in four months.
The dollar was lately at $1.2141 (EUR-) per euro, having earlier touched $1.2127, its highest level since Aug. 1.
Analysts said gold has become vulnerable to an aggressive sell-off given the sizeable long positions that had built up since last week.
"Gold is likely to consolidate around $438/440 before continuing on its bullish trend, though the risk of a sell-off by funds trimming their speculative long positions should not be ignored," Standard Bank London said in a report.
The market hit its highest in eight months at $449.30 a troy ounce late last week but has since slid by some 2.5 percent as the dollar bounced.
Technical traders said a break of $438 would open the way for a slide to $430 and possibly all the way back to the mid-July lows around $418.
But although the market is susceptible to short-term peaks and troughs, it should largely retain a longer-term allure as an attractive investment, given the current commodity price boom.
"Support should now be found back at $432 and will be a good buying opportunity for investors with gold still looking set to work higher as we head into the third and fourth quarters," James Moore of TheBullionDesk.com said.
Barclays Capital, in a report, said it also saw some short term upside potential.
Latest data showed that signatories of the second European Central Bank Agreement sold a further 10 tonnes of gold last week, implying that first year sales under the agreement are now complete.
"This, we think, has the potential to lift the cap on gold prices in the short term," Barclays said.
In other precious metals, silver (XAG-) was at $6.99/7.02, against $6.98/7.01, platinum (XPT-) dipped $4.00 to $886.00/889.00, while palladium (XPD-) rose $1.00 to $183.00/185.00.