Spot gold prices rose strongly into the London close Friday, ending the week $6 above Thursday's low before rising again to $663 as the New York session wound down.
Technical analysts had earlier pointed to $658 as key support, both as the 100-day moving average and also the bottom channel of the uptrend starting in Oct. '06.
Should gold continue to move steadily higher again next week – the underlying pattern of the last six years – many investors may come to regret selling on a 5% correction in what's proving to be a volatile spring 2007. (Get the big picture for gold today here...)
The world's largest exchange-traded gold fund – StreetTracks GLD – sold 8 tonnes of bullion on Wednesday as investors quit the trust.
Redemptions have now forced the sale of 6% of GLD's gold since holdings peaked at 500 tonnes this time last month.
"Some Japanese trading houses are taking this opportunity to arbitrage this morning," said Wallace Ng, chief trader at Fortis Bank in Hong Kong on Friday.
"[They're] buying spot gold and selling forward months in Tocom."
Tokyo gold futures for April '08 dropped ¥18 for the day – some 0.7% – closing the week equal to $664 per ounce.
Gold's loss versus the Yen came even as the currency delivered its worst performance versus the Dollar since late March.
The Yen dropped 0.9% of its Dollar value this week. The Pound was earlier pushed back to a one-month low of $1.9702 as the Euro also fell further.
"The gold funds' selling is not done yet," reckons Ng at Fortis. "Gold might continue to weaken."
He puts a floor under this setback at $652 per ounce.
Standard Bank said Friday that after failing "to regain the key $665 technical level...the strong sentiment over the past weeks seemed to be waning. The next key support to look to lies at the $650 level, with a break lower suggesting another move lower toward the 200-day moving average currently around $635."
Yet strong sentiment at April's highs of $690 and above didn't translate into stronger physical sales, however.
The London Bullion Marketing Association said Thursday that spot gold trading by volume cleared at the LBMA last month fell 22% from April '06.
The number of transfers, however, rose 8.9% – suggesting smaller trades made by more traders.
Private investors testing the gold market with smaller positions may also choose to see this week's slumping gold price as their chance to buy cheap, too.
Free from the struggle to justify long-term diversification to big institutional clients, private individuals can decide for themselves the merits of holding gold – a proven store of value for 3,000 years and more – to spread their currency and securities risk.