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Gold Ends At Six Month Lows After Scare Below $1,600

Photo: Hans-Peter Merten | Photographer's Choice

Gold ended the session on Friday hunkered at a six-month low, as a breach of key chart support levels attracted more sellers who briefly sent the precious metal below $1,600.

Softer appetite for the precious metal from investors and a dearth of physical demand from China during the Lunar New Year holiday put the metal on track to slip 3 percent this week, its biggest weekly drop since June.

The yellow metal hit a low of $1,596.70 an ounce, its weakest since Aug. 16, before recovering to claw back above $1,600. U.S. gold futures for April delivery ended down more than 1.60 percent, settling at $1,609.50

"The 1,625 level was a big support and once that was broken, stop-selling orders kicked off and now we are in a new range of $1,550 to $1,625," said Adrien Biondi, head of precious metals trading at Commerzbank.

Sell stops are automatic technical selling signals that start after prices break through key support levels, which allow traders to limit losses in a falling market.

Losses in the euro also pressured the metal. The single currency remained in negative territory against the dollar after data showing manufacturing in New York state expanded in February for the first time in seven months.

Gold investment has softened this year on signs that economies such as the United States and China are picking up, while continued problems of sovereign debt and economic weakness in Europe seem to be priced in by the market.

"The market now seems to be getting used to the more positive frame of mind of a recovering U.S. (economy) - which entails lower probability of continued QE and in turn a lower gold price," MKS Capital said in a note.

The next focus for the market remains a G20 meeting and ensuing statement, which could affect broader markets by giving more clues on currencies.

"(The Group of 20) will try to put the 'currency wars' discussion to rest," MKS added. "Given the uncertainty around the meeting's results, (there could be) volatility... next Monday."

The physical market was again subdued in Asia. Chinese players, however, were expected to take advantage of the lower prices to replenish stocks when they return from their week-long public holiday for the Lunar New Year celebrations.

"With prices coming lower, all the physical buyers will start covering some of the shorts and maybe some investors will come around as well," Commerzbank's Biondi said.

Soros Cuts Stake in SPDR, Paulson Holds

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Data released on Thursday showed billionaire investor George Soros cut his holdings in the SPDR Gold Trust, the world's largest gold exchange-traded fund, by more than half in the fourth quarter, while GLD's biggest shareholder John Paulson left his holdings unchanged.

A few other notables also cut exposure to gold, including investment fund PIMCO and Tiger Management's Julian Robertson, who dissolved his entire stake in Market Vectors Gold Miners ETF.

The SPDR's holdings fell 0.23 percent on Thursday from Wednesday, while those of the largest silver-backed ETF, New York's iShares Silver Trust, rose 0.26 percent during the same period.

The physical market was again subdued in Asia. Chinese players, however, were expected to take advantage of the lower prices to replenish stocks when they return from their week-long public holiday for the Lunar New Year celebrations.

"Chinese physical demand at these lower levels will be seen when they return to the market next week, it just depends to what degree," MKS Capital said.

Gold imports into India surged 23 percent to 100 tonnes in January, as traders snapped up supplies ahead of a hike in duty by a government struggling to rein in its import bill.

In other precious metals, platinum and palladium gave up gains made at the start of the week and followed the rest of the complex lower.

Spot platinum fell more than two percent to trade just above $1,673 an ounce, while palladium shed more than 1.50 percent to change hands above $751, after hitting a new best since September 2011 at $775 on Wednesday. TOCOM palladium rallied to its highest since mid-2001 this week on hopes of rising demand from auto makers in China.

Spot silver sank to a one-month low under $30 an ounce, down about two percent.


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