May 10, 2013, 12:38 p.m. EDT

Gold drops over $40 as U.S. dollar climbs

Gold set for 3% weekly loss; SPDR Gold Trust holdings fall further

By Myra P. Saefong and Barbara Kollmeyer, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold futures fell by more than $40 an ounce on Friday, weighed down by a rally in U.S. dollar against the Japanese yen and sentiment still dented by a continued decline in the SPDR Gold Trust’s holdings.

BNP Paribas also cut its view on gold prices, but said the metal will be trading back above $1,600 an ounce in six months.

June gold futures /quotes/zigman/647778 GCM3 -2.15% fell $45.70, or 3.1%, to $1,422.90 an ounce on the Comex division of the New York Mercantile Exchange.

The precious metal sliced a weekly gain to a loss of 2.8%, on the heels of two straight winning weeks.

Silver for July delivery /quotes/zigman/652548 SIN3 -0.95% also fell 63 cents, or 2.6%, to $23.28 an ounce, set for a 3% loss on the week.

The broad drop among precious-metals prices came as the U.S. dollar extended its gains versus the Japanese yen. On Thursday, the greenback /quotes/zigman/1652083 DXY +0.60% climbed above ¥100 for the first time since April 2009 following better-than-expected jobless-claims data. On Friday, it traded around ¥101.57.

“Japanese hedge funds and Japanese retail investors are huge investors in gold,” said Chintan Karnani, an independent bullion analyst based in New Delhi. A weaker yen against the U.S. dollar has increased the profitability of Japanese companies, as most of them are dependent on exports, and prompted a “change in investment portfolios from gold into Japanese equity markets,” he said. “Yen prices will have a far bigger impact on gold prices over U.S. economic releases,” said Karnani.

A stronger dollar tends to hurt prices for dollar-denominated commodities such as gold as it makes them more expensive for holders of other currencies.

Michael Hewson, senior market analyst at CMC Markets, said gold’s break through $1,440 “opens up the risk of a move towards $1,400 and a retest of this year’s low at $1,322.”

ETF and demand
Demand for gold in its physical form remained a key factor for the market.

Gold holdings in the SPDR Gold Trust /quotes/zigman/41663/quotes/nls/gld GLD -1.31% fell about 15 metric tons to 1,054 metric tons as of Thursday, from a week earlier. Declines in gold holdings in the largest U.S. gold-backed exchange-traded fund was partly to blame for the nearly 8% drop in gold futures prices last month. Read about how the ETF “revolution” has bloodied investors.

Julian Phillips, founder of and contributor to GoldForecaster.com likened the sales of gold from the ETF to “drawing back the string on a bow and arrow.”

“When the SPDR selling stops, the arrow — gold and silver prices — will fly,” he said.

Demand from Asia remains strong, said Phillips.

http://www.marketwatch.com/story/gol...ain-2013-05-10