NEW YORK (Dow Jones)--Gold locked in a third straight week of gains
Friday, while silver reached 31-year highs, despite China's monetary
tightening.
The most-actively traded contract, for April delivery, settled up
$3.50, or 0.3%, at $1,388.60 per troy ounce on the Comex division of the
New York Mercantile Exchange.
The thinly traded February-delivery contract settled up $3.50, or 0.3%, at $1,388.20 per troy ounce.
China's move to raise bank reserve requirements by 0.5 percentage
point for the second time this year pressured gold futures Friday. The
decision aims to constrict credit availability to the Chinese economy by
making banks set more capital aside for existing loans. Chinese
authorities have been drawing the purse strings since inflation rates
hit a two-year high of 5.1% in November.
"The market is weighed down by the Chinese reserve rate rise," said
Jim Steel, senior vice president and metals analyst with HSBC in New
York. But "it's not enough to offset all the other factors supporting
gold."
China last raised reserve requirements Jan. 20, while the People's
Bank of China raised benchmark interest rates by 0.25% on Feb. 8. Such
moves tend to trim gold prices, as easing inflation concerns curb
investor demand for safe-haven assets like gold.
Gold futures resumed their upward march in Friday afternoon trade, as
market participants eyed simmering tensions in the Middle East. Egypt
allowed two Iranian warships to pass through the Suez Canal on Friday,
while Israel had earlier described Iran's move as a "provocation."
Meanwhile, violent clashes between security forces and pro-democracy
protesters in Yemen and Bahrain underscored the rising political
instability in the region.
"The market is being supported by a bit of uncertainty," said Ralph Preston, analyst with Heritage West Financial.
Gold's recent gains have some market participants gearing up for a
test of records. Gold futures crossed above their 50-day moving average
of $1,372.40 earlier this week, a sign technical traders and algorithms
consider a positive signal for prices.
"Today's positive close has set the stage for a challenge of the all-time high next week," Preston said.
Silver prices ended Friday at 31-year highs amid strong industrial and investment demand for metal.
The most-actively traded contract, for March delivery, settled at
$32.296 per troy ounce, up 72.6 cents, or 2.3%. This was the highest
settlement price since 1980, when the Hunt brothers of Texas attempted
to corner the silver market.
Silver's recent price gains, however, stem from robust industrial
demand for the metal. Silver is widely used for electrical and
electronic applications in everyday consumer devices like smartphones
and solar-power panels. The precious metal also plays a key role in
manufacturing polyester.
"The strength of industrial demand has tended to surprise to the
upside, and that's part of prices escalating to where we are today,"
said Philip Klapwijk, chairman of metals consultancy GFMS.
Investment demand for silver has also been on the rise. Major
physical-silver exchange-traded funds are seeing investors return after
strong redemptions in January, while the U.S. Mint sold 6.4 million
1-ounce American Eagle coins in January, nearly double the 3.6 million
coins sold a year earlier.
"Demand for silver coins has been nothing short of spectacular since
the first of the year, and it's been going on for longer than that,"
said Michael Haynes, chief executive of American Precious Metals
Exchange, a large bullion and precious coins dealer. "To some degree,
people see silver and gold moving parallel, and because of its price
point, people see that they can acquire 10 ounces of silver for less
than a single ounce of gold."
