Gold gave up some of its sharp overnight gains on Friday, but held above $1,200 an ounce as a drop in equities stoked fresh safe-haven demand for the metal.
Asian shares slipped from near three-week highs on Friday, following a drop in US equities overnight that snapped a three-day rally.
Bullion’s 16 per cent rally so far this year has made it the best performing asset amid turmoil in stock markets and concerns over the global economy.
But some analysts say markets have over-reacted and that gold prices will fall further.
Spot gold eased 0.4 per cent to $1,226.61 an ounce by 0308 GMT, after gaining 2 per cent on Thursday. For the week, it has lost nearly 1 per cent, as traders took profits after the metal climbed to a one-year top last week.
“We think the current gold price rally will reverse, once risk-sentiment buying fades, similar to the trend seen in early 2014 and 2015,’’ Nomura said in a note, adding that they expect prices to average $1,055 in the first half.
“Despite current financial market volatility, we do not think there has been a major change in the fundamentals of the global economy.’’
For now, the metal was supported by inflows into gold-backed exchange-traded funds (ETFs), holdings of which have already risen this year by more than they fell in the whole of 2015.
Assets in SPDR Gold Trust, the world’s top gold ETF, rose 0.38 per cent to 713.63 tonnes on Thursday.
Gold is also being bolstered by rising speculation that the Federal Reserve would not be able to hike US interest rates due to concerns about the economy. Traders are betting even odds at best of a single rate hike, while economists polled by Reuters see two rate hikes this year.
“The key factor underpinning our bearish view for gold prices will still be the FOMC rate outlook for the year,’’ OCBC Bank analyst Barnabas Gan said, referring to the Federal Open Market Committee.
Gan raised his year-end gold forecast from $950 an ounce, but still kept the estimates below bullion’s current levels.
He expects gold to reach $1,000 if the Fed introduces three hikes rates, and $1,150 if the central bank hikes rates just once this year.
In the physical markets, Asian gold demand slowed this week as consumers opted to wait out the metal's biggest rally in years, with discounts in key consumer India hitting a record high as some investors cashed-out holdings.