Gold edges higher from its 2½-year low

Gold prices were higher on Friday after the metal tumbled to a 2 1/2 year low Thursday fueled by potential slowing of the Federal Reserve's bond buying program later this year. The metal is recouping prior-day losses rather than reacting to any news in the markets.

By Saumya Vaishampayan and Barbara Kollmeyer
June 21, 2013, 12:26 p.m. EDT
Market Watch

NEW YORK (MarketWatch) — Gold prices edged higher on Friday after the metal tumbled to a 2½-year low in the previous session fueled by a potential slowing of the Federal Reserve’s bond purchases later this year.

Gold for August delivery GCQ3 +0.71% gained $5.80, or 0.5%, to $1,292.10 an ounce.

Yields on the 10-year U.S. Treasury note 10_YEAR +3.23% pushed above 2.5% briefly on Friday and U.S. stocks turned lower.

The price action is a recouping of prior-day losses rather than a result of news, said Carlos Sanchez, director of asset management at CPM Group.

The contract had plunged more than 6% during Thursday’s floor trade on the New York Mercantile Exchange, as investors continued to price in the Fed’s possible trimming of its monetary stimulus later this year. The Fed currently buys $85 billion in mortgage and Treasury debt each month as part of its efforts to spur the economy.

After settling Nymex trade at $1,286.20 an ounce — the lowest close since September 2010 — August gold took further damage on news that exchange operator CME Group Inc. CME -1.12% was hiking margin requirements.

The CME, which owns the Nymex’s metals-trading Comex division, said following Thursday’s close that it would hike initial and maintenance margins for gold by 25%, according to reports.

The increase means speculative traders must have $8,800 to open a 100-troy-ounce position, up from $7,040, and keep $8,000 to hold the contract overnight, up from $6,400, Dow Jones Newswires said.

The new margins would come into effect after Friday’s close, CME said.

Gold’s slight gains on Friday could be vulnerable as the ICE dollar index DXY +0.71% rose to 82.425 in recent trade. A stronger U.S. currency tends to weigh on gold and other dollar-denominated commodities, as it makes them more expensive for holders of euros, yen and other units.

The dollar had rallied since the Federal Reserve’s statement late Wednesday, signaling it could slow its asset purchases this year if the economy improves further.

“The way things are going, it may be a quiet day,” said Sanchez on Friday morning. But he noted that options will expire next week, which should increase volatility as the July contract will become deliverable at the end of June. As a consequence, “you may see some more activity in the silver market as opposed to the gold market toward the end of next week,” he said.

Writing Thursday, GFT Markets technical analyst Fawad Razaqzada saw further downside of $1 to $11 for August gold, but with more room to go higher if the metal rebounds in earnest.

“The next stop is probably $1,275/85” based on technical indicators as observed on the price charts, he said.

“Beyond this area, there is nothing significant until $1,200. On the upside, $1,350 is likely to turn into resistance, having provided support before,” Razaqzada added.

The July contract for silver SIN3 +0.87% was up 6 cents, or 0.2%, to $19.88 an ounce, after dropping $1.80 on Thursday.

Elsewhere in the metals complex, copper for July delivery HGN3 +0.96% rose by a cent, or 0.5%, to $3.08 a pound, while September palladium PAU3 +1.43% rose $4.10, or 0.6%, to $669.20 an ounce.

July platinum PLN3 +0.44% shed $1.20, or 0.1%, to $1,362.60 an ounce, after losing more than $60 in Thursday’s Nymex action.

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