By Barani Krishnan
Investing.com – Sovereign debt yields crawling out of their historic lows nudged light profit-taking in gold that took some luster off the precious metal on Friday.
For the week, though, gold cruised to its third consecutive gain, with little sign of damage to the confidence of longs in the market.
Spot gold, reflective of trades in bullion, was down $7.49, or 0.5% at $1,515.70 per ounce by 2:45 PM ET (18:45 GMT).
Gold futures for December delivery, traded on the Comex division of the New York Mercantile Exchange, settled down $7.60, or 0.5%, at $1,523.60.
For the week, spot gold was up 1.2%. Futures rose 1%. Compounded gains over the past three weeks were nearly 8%.
Gold dipped on the day as risk appetite returned somewhat across markets after the yield on the 10-year U.S. Treasury moved back above that of the 2-year note, reversing the inversion that some economists said flagged a pending recession.
Yields on sovereign debt in general, such as the U.S. 30-year Treasury bond or 10-year paper from the likes of Germany or France, were also moving away from historic lows, placing some slight pressure on non-yielding bullion.
Analysts said safe-haven demand for gold remained strong, although the improved sentiment for equities and other risk assets were prompting investors to look again at core financials.
“Precious metals may have benefited from equity angst and recession fears this week, but the lack of bad news is spurring some consolidation,” TD Securities said in a note on gold.
Bank of America Merrill Lynch (NYSE:BAC), meanwhile, said monetary authorities could step up gold buying in the near tern, not just for safe-haven purposes but also de-dollarization and portfolio diversification.
The Wall Street bank said a gold allocation of just below 5% maximizes the risk-return profile of a conservative portfolio and estimated that the gold holdings at 12% of central banks were below that threshold.
“If all those monetary authorities lifted their allocations to optimal levels, this would generate an impressive 5,870 tons of additional gold demand, compared to last year's combined mine and scrap supply of 4,600 tons,” BAML said in a note.
“Putting it together: record long futures markets raise the risk of a short-term pullback in prices, but there is scope for further gold purchases by investors and central banks going forward.”
Sought in both good times (think jewelry and other ornamental use) and bad (as a safe-haven against economic and political troubles), gold is up 19% year-to-date, having its best time since the summer of 2011 when it hit a record high of $1,911.60 an ounce.
Since the start of August, gold has gained over 6%, or nearly $90, amid heightened trade tensions and sustained buying by central banks responding to a slew of disappointing economic data globally. Speculative support lent by hedge funds and indirect buying of gold via exchange-traded funds have been other major drivers of the rally.
Some strategists have a top-end target of $1,820 for gold futures in the near term, saying if Comex takes this out, it could set the stage for the precious metal to match its current record or even write a new one.
But after daily rises of up to 2% or more in recent weeks, gold’s ascent on recession fears has also slowed lately, with investors awaiting cues of more central-bank easing, particularly from the Federal Reserve, before committing to more long positions.
That has made some investors in gold less ambitious and more cautious, citing a near-term pullback if the market settles below $1,526.