Gold and silver prices gave back nearly all of their prior day's rally and the dollar and yen slid further Friday after China reported inflation accelerated in December.
Rising inflation reduces the certainty of more economic stimulus, which traders see as a catalyst for driving precious metals prices higher.
Spot gold prices lopped off 0.88% intraday to $1,661 an ounce, giving back the prior session's gains.
SPDR Gold Shares (GLD), tracking a 10th of an ounce of bullion, tumbled 0.79% to 160.70.
Market Vectors Gold Miners ETF (GDX) shed 0.07% to 45.38.
"Gold and silver appear to be falling with materials generally, trading more like commodities than precious metals, on negative global economic news," Tom Winmill, manager of Midas Fund , said in an email.
Gold broke below key support at the 200-day moving average, falling back into a downtrend. The yellow metal is now trading below both the short-term 50-day moving average as well as the long-term 200-day line, which is very bearish. What's more, the yellow metal broke below a major, long-term uptrend line connecting the 2008 and 2012 lows, which some technical traders use as a sell signal. The next levels of price support are the lows from Jan. 4 and Dec. 20 near 158 on GLD and $1,580 an ounce for gold.
"But China has begun and is likely to keep stimulating again, and that should be positive for gold," Harry Dent, founder of HS Dent, a stock market and economic research firm in Tampa, Fla., said in an email. "U.S. growth is going to slow in the first quarter and that gives more incentive for China and Europe to stimulate again."
Traders are slamming gold and silver to shake out the weak hands to create an opportunity to buy back at lower prices, says Dent. He believes traders should buy the dip on the expectation that prices will run up to new highs before topping in late February or May.
Consumer prices in the People's Republic climbed to 2.5% (year over year) in December from 2% the prior month, marking the fastest rate in more than six months. If inflation is rising in China, it's less likely to print more money to juice the economy, which dampens demand for hard assets.
The gold bulls contend negative real interest rates in the U.S. and other countries makes gold appealing because the opportunity cost of holding precious metals relative to cash is negligible.
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