The price of gold is trading at $1 348,25 in early trade on Friday, boosted by physical buying interest.
Spot gold edged up on Friday, recovering from a decline of 2% in the previous session, propped up by physical buying interest, but ebbing investment demand in consequence of an improved economic outlook continued to weigh on prices.
US home resales jumped more than expected in December and claims for new jobless claims last week posted their biggest decline in nearly a year.
Investment interest in gold and silver has fallen in the beginning of the year, with holdings in the exchange-traded funds dropping to multimonth lows.
"It’s long liquidation. ETFs keep redeeming," said a Singapore-based trader. "Some long-term gold holders have definitely been going out."
Holdings in the SPDR Gold Trust remained unchanged.
Holdings in the iShares Silver Trust, the world’s largest gold-backed exchange-traded fund, fell further to 10 526,70 tonnes, its lowest since November.
Spot gold gained 0,2% to $1 348,25 an ounce by 0341 GMT, but was on course for a third consecutive week of falls. US gold edged up 0,1% to $1 347,8.
Spot gold will extend its loss to $1 322, as a downward wave "C" or wave "3" is progressing, said Wang Tao, a Reuters market analyst.
The recent downturn in gold and silver prices is a healthy correction that will not last long, traders and analysts said.
"There’s some selling pressure still ongoing in the gold market," said Yingxi Yu, an analyst at Barclays Capital. "But we still expect prices to venture into uncharted territory sometime this year. The macro environment still looks supportive for investment interest in gold."
An improved economic outlook dampens gold’s safe-haven appeal, but inflation worries down the road may again drive investors to the precious metal, Yu said.
Also weighing on sentiment, the CME Group, the parent of the Chicago Board of Trade, said it would hike requirement margins on gold futures by 11%, and silver futures by 6%.
The dollar index pared some gains from the previous session, as the euro held its ground with investors wary of getting too bearish on the common currency after a recent rally turned round sentiment.
The physical market in Asia remained buoyant, as jewellers, investors and bullion traders hunted for bargains after prices fell to nearly $100 below the record high of $1 430,95 hit on December 7.
"Demand is still strong, with Thailand being the major buyer," said a Singapore-based dealer, adding that the next support level would be at $1 345.
Chinese activity is expected to slow as the week-long Lunar New Year holiday in early February draws closer.
Spot silver gained 0,4% to $27,58, headed for a three-percent weekly decline. The metal was the worst performer in the precious metals complex, losing 11% so far this year, followed by gold’s 5% fall.
