LONDON - Gold prices steadied near $1565/oz on Friday as a decision by the European Central Bank (ECB) to ease collateral requirements lifted the euro, but remained on track for its biggest weekly loss this year after US stimulus measures disappointed.
The metal posted its steepest one-day drop since February 29 on Thursday, a day after the Federal Reserve held off on a new round of quantitative easing, or printing money to buy bonds, to boost growth in the US.
Talk that more stimulus measures were on the way, which would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom and weighing on the dollar, had buoyed the metal earlier this month.
It has since erased the bulk of its gains both for June and for the year as a whole.
Spot gold was little changed at $1563,46/oz at 2.27pm GMT against $1565,42/oz late on Thursday, while US gold futures for August delivery eased 40 cents to $1565,10/oz.
Gold found support as the euro hit session highs against the dollar, with market participants citing a combination of short-covering and news on the ECB easing collateral requirements, in a move designed to ease pressure on Spain.
"As long as previous low price levels sub-$1530 hold, we expect gold investors' interest in gold will remain intact," LGT Capital Management analyst Bayram Dincer said. "The aspect of higher global systematic risk should also induce higher safe haven demand for gold."
The prospect of another round of QE remains a possibility later in the year, he added. "Figures for the US will get worse, which will keep the QE3 fantasies alive," he said.
A Reuters poll on Thursday showed Wall Street's top bond firms still estimated a 50% chance that the Fed would begin a third round of quantitative easing.
Concerns over global growth remained high on Friday, as German business sentiment fell for a second straight month in June to its lowest level in more than two years. German, French, Italian and Spanish leaders were meeting in Rome on Friday ahead of a key EU summit next week.
"The one thing that will support prices this year is the potential for further aggressive monetary stimulus in the US, whether it is QE or a new policy," Natixis analyst Nic Brown said.
"The Fed may be forced into doing something," he said. "The fundamentals in the US may be improving ... but the European situation is managing to drag everyone else down with it."
German debt extended falls and banking stocks rose on Friday after the ECB said it would accept a wider range of collateral, including lower quality assets.
From a technical perspective, gold is seeing good support at $1560/oz, and below that at $1530/oz, analysts who study past price patterns for clues to the future direction of trade said.
"The price action looks weak, but overall the metal has been contained in this $1528-$1640 range for two months," ScotiaMocatta said in a note. "A break of $1523, the December low, would see liquidation looking for a bigger move."
Demand for physical gold in key markets remained lacklustre, meanwhile. Gold imports to India, historically the world's largest buyer, fell by $6,2bn in the first two months of the fiscal year that began in April, compared with a year before, finance secretary RS Gujral said on Friday.
Gold buying in India has been hurt by weakness in the rupee, which pushed local prices to record highs, and the federal government's decision to double import duty on gold to 4%. Gold imports have been widely blamed as one of the reasons for the country's widening current account deficit.
The market remained underpinned by demand from central banks, meanwhile. Russia's central bank raised its gold reserves by about 500000 ounces, or 15,6 tons, in May.
Silver was down 0,5% at $26,76 an ounce.
Prices fell 4,4% on Thursday and touched their lowest this year earlier on Friday at $26,60.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to its highest since October 2010 this morning, at 58,2.
Demand for silver American Eagle coins from the US Mint has been sluggish this year, with sales of only 1,975-million ounces recorded so far this month, well below last June's total of 3,402-million ounces.
Spot platinum was up 0,1% at $1431,25/oz, while spot palladium was up 0,4% at $605,75/oz.