Gold prices turned higher late Friday, moving back to the top of the session range, as some investors returned to the yellow metal as a safe-haven play when the euro fell in response to Moody's downgrade of Ireland's credit rating.
"You're seeing some flight to quality as the euro sells off in reaction to the downgrade of Ireland and all the other contagion issues," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC in Chicago.
Spot gold was bid at $1,376.80 an ounce by 3:53 p.m. EST , against $1,370.46 late in New York on Thursday. U.S. gold futures for February delivery were also up, gaining $8.20 to $1,379.20 per ounce.
Gold has been fluctuating with the dollar/euro exchange rate and with investors contrasting needs to own safe assets as Europe faces the threat of debt contagion and to take profits from gold as stronger economic data lessens the need to guard against risk.
The euro declined for a second straight week against the dollar and may extend losses after a multi-notch downgrade of Ireland's credit rating affirmed the severity of the euro zone debt crisis.
The euro remained vulnerable after the Moody's cut and as an agreement by European Union leaders on Thursday to set up a permanent crisis management mechanism failed to calm fears about the region's debt crisis.
Earlier, gold slipped below $1,370 an ounce as the dollar moved higher versus the euro, and as U.S. leading economic indicators jumped in November.
Signs the U.S. economy is gathering steam as the year draws to a close boosted optimism about prospects for the coming year, according to two separate economic research firms.
The Conference Board's leading economic indicators jumped 1.1 per cent in November, the biggest rise since March and the fifth straight monthly gain.
Separately, the Economic Cycle Research Institute said its gauge of future growth rose to its highest level since May.
Gold sold off after the news, dipping below the 50-day moving average for the second straight session. But later it moved back above the medium-term measure, keeping prices within their higher plateau in a wide 3-month range around peak levels.
Though the precious metal has been moving closely in line with fluctuations in the euro-dollar exchange rate as the financial markets wind down for Christmas, many analysts remain bullish as they look ahead to 2011.
"I'm still bullish. Realistically, you could see gold between $1,320 and $1,640. We haven't touched the 200-day average for some time. We're significantly above it and we haven't gotten close to testing it for awhile," McGhee said.
He also pointed to the continued need for the Federal Reserve to carry out its debt repurchase program to keep the U.S. economy propped up, along with debt contagion in Europe, as prime reasons gold will stay high next year.
"There is a tremendous amount of talk that the U.S. recovery is getting to a point that it can stand on its own two feet. I don't see it happening. If we get true job growth for an extended period, I might believe it," the analyst said.
For the near term, Thursday's move below $1,372.30 an ounce opened up the potential for a fall towards $1,351.50 an ounce, Swiss bank UBS said in a note.
A break of that level could mean a further move down to $1,330, while a move through $1,408 would be needed to signal an end to the correction, it added.
"We are into a typical end-of-year scenario now, where order flow more than fundamentals drives the market," said Saxo Bank senior manager Ole Hansen.
Investor demand for gold-backed exchange-traded funds remained light, with holdings of the world's largest, New York's SPDR Gold Trust, falling to a two-month low of 1,283.757 tonnes on Thursday.
Among other precious metals, silver rose to $29.14 an ounce in late trade, against $28.87 on Thursday. Platinum was higher at $1,699.50 an ounce versus $1,694.49 and palladium pushed up to $739.22 versus $736.50 an ounce.
"Near-term price action in the platinum group metals is being more determined by the search for hard assets and the rallies in gold and silver, than by immediate industrial demand," HSBC said in a note.
Looking longer term, analysts said autocatalyst metals platinum and palladium, which have both recorded a stellar year in 2010, could be set to outstrip gains in gold if the economic recovery gains traction.