Gold futures make sudden turn lower

By Myra P. Saefong and Barbara Kollmeyer, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold futures made a sudden turn lower on Friday, with analysts blaming the drop on profit-taking ahead of the weekend.

Earlier, news that the U.S. economy grew less than expected in the first quarter had lifted the metal’s safe-haven appeal.

Gold for June delivery GCM3 -0.55% shed $13.70, or 0.9%, to $1,448.30 an ounce on Comex division of the New York Mercantile Exchange.

Prices had been up by more than $10 an ounce from Thursday’s close, then lost steam and turned lower within a roughly 10-minute time span on Comex.

Chintan Karnani, independent bullion analyst based in New Delhi, said he was flooded with telephone calls over the reason for gold’s fall.

“The only reason is profit taking before the weekend and failure to break past an intraday high of $1,484.80,” he said. “This fall has scared traders and they will be using every rise to exit gold buys.”

Tracking most-active contracts, gold futures were still poised for their first weekly gain in five weeks, up about 3.8% for the week.

An analysis of the market’s latest gold-price forecasts shows that not everyone’s bearish on gold’s prospects, even after the spate of lowered forecasts that followed Goldman Sachs’s on April 10.

First-quarter U.S. gross domestic product grew an annualized 2.5%, falling short of expectations. And for April, the University of Michigan-Thomson Reuters consumer sentiment gauge fell to a final reading of 76.4, its lowest since January.

GDP was below consensus by a fair amount, and the data were another sign that quantitative easing and real interest rates will continue along the current path, said Jeffrey Wright, managing director at Global Hunter Securities.

QE tends to pressure the dollar and can lead to inflation. Gold is often seen as a hedge against inflation.

Physical demand

Analysts have said that physical demand for gold has strengthened in the roughly two weeks following the selloff that brought gold into technical bear-market territory.

The market is likely “seeing the effects of intense worldwide physical-metal demand over the past week, from manufacturers on down to small investors on the street,” said Gene Arensberg, editor of the Got Gold Report. It’s a “bargain hunting deluxe.”

That physical demand has “cleaned out many bullion dealers, who in turn placed new orders with refiners and so on,” he said.

In a report dated Friday, the World Gold Council touted gold’s benefits in mitigating market risk and preserving wealth and said that gold is far from being overbought. Annual investment demand for gold has grown to 1,538 metric tons in 2012 from 348 metric tons in 2001, the WGC said.

The U.S. Mint has suspended sales of some gold coins this week after a surge in demand. Physical purchasing over the last two weeks has been “counterbalance” to massive gold exchange-traded-fund liquidation, said Wright.

Thursday’s rally

on Thursday, gold futures saw their biggest one-day gain of the year. The June gold contract jumped $38.30, or 2.7%, to $1,462 an ounce.

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“The prospect of emerging-market central bank buying and strong physical demand has put a bid in the market and reminded everyone that it’s not all about speculators,” IG chief market strategist Chris Weston wrote to clients.

A weaker U.S. dollar has also helped gold prices rise after a massive selloff that has left them down by more than 8% this month. A weaker dollar tends to boost dollar-denominated prices for gold and other commodities.

The dollar DXY -0.32% on Friday continued to track lower against key rivals after the disappointing GDP data. The ICE dollar index slipped to 82.482 from 82.813 late Thursday.

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Analysts have said prospects for easier monetary policies have contributed to gold’s gains in recent sessions. Economists this week boosted the odds of an interest-rate cut by the European Central Bank at its May 2 meeting in the wake of weak manufacturing activity reports in Europe.

In the broader metals complex, May silver SIK3 -1.39%traded 35 cents lower, or 1.5%, at $23.78 an ounce, after a leap of 5.7% on Thursday. Pries were set for a gain of almost 4% for the week.

May copper HGK3 -1.56% slipped 5 cents, or 1.7%, to trade at $3.18 a pound, trading 1% lower for the week. July platinum futures PLN3 +0.72% climbed $10.80, or 0.7%, at $1,474.90 an ounce, up about 3.6% for the week and palladium for June deliveryPAM3 +0.16% shed $2.75, or 0.4%, to $678.65 an ounce, poised for a rise of 0.2% for the week.

Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @MWBarbaraKollmeyer. Sara Sjolin in London contributed to this report.