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Gold heads for biggest weekly loss since December

Gold gave up early gains on Friday and was heading for its biggest weekly loss since December after growing fears of a global economic slowdown hit commodities, prompting investors to seek safety in the US dollar.

Gold has lost some of its safe-haven appeal after financial market turmoil caused by the prolonged debt crisis in Europe and the US Federal Reserve’s decision to take only a modest step to boost the economy prompted investors to cash in bullion to cover losses.

But with the US economic recovery still flailing, the jobless rate at 8.2 percent, and Europe’s debt crisis simmering, there was hope that the Fed may launch even more unconventional action, including a third round of a long-term bond buying programme known as quantitative easing.

Gold rose in early trade to a high of about $1,568 an ounce before slipping to $1,563.50 by 0614 GMT, down $1.92. Bullion fell 2.5 percent on Thursday - its biggest one-day drop since late February after the Fed stopped short of launching another round of quantitative easing.

The market is still discounting the possibility that the Fed could adopt more policy measures to stimulate growth, said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

“But we believe there has to be more. Regardless of what happens in Europe, there’s going to have to be more stimulus.”

US gold futures for August delivery fell $1.10 an ounce to $1,564.40.

Previous rounds of asset purchases by the Fed to drive down interest rates and stimulate the economy had weakened the US dollar, boosted global stock markets and prompted investors to turn to gold as a hedge against inflation.