Gold settles lower on Greek bailout uncertainty

By Ross Tucker

Updated at 4:45 p.m. ET

Gold prices settled slightly lower Friday as investors showed caution ahead of a holiday weekend in the U.S. and as the fate of a second Greek bailout remained uncertain.

Gold (-GC) for April delivery dipped $2.40 to settle at $1,725.90 an ounce at the Comex division of the New York Mercantile Exchange. Gold has traded as high as $1,737.50 and as low as $1,718.60 an ounce, while the spot price was down $4.60, according to Kitco's gold index.

Silver (-SI) finished down 15 cents at $33.22 an ounce, while the U.S. dollar index was flat at $79.32.

Investors are keeping a close eye on Greece, with many now growing increasingly confident that the country will secure a bailout before a meeting of eurozone finance ministers Monday, averting a disorderly default that could rock financial markets.

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"Early buyers met sellers as the day wore on," said George Gero, senior vice president with RBC Wealth Management. "It's a long weekend upcoming, and traders are reluctant to risk large capital for new positions in case, once again, eurozone headlines disappoint investors."

Overhanging the gold market was a mixed global demand picture. In the World Gold Council's 2011 Gold Demand Trends report, total gold demand was up just 0.4% to 4,067.1 tons. Indian demand suffered as the rupee was pummeled by the dollar. Jewelry demand was down 44% in the fourth quarter, 14% for the entire year. Bar and coin demand was up just 5% in 2011. The country still consumed 933.4 tons of gold in 2011 and, coupled with China, generated 55% of global jewelry demand and 49% of global demand.

For now, China is making up for slowing Indian demand. The country consumed 769.8 tons in 2011. Jewelry demand was up 13%, and investment demand grew to more than 250 tons. But the worry is that if Indian demand slows, Chinese demand won't add the extra boost it has been to the gold price.

"Growth in Chinese demand is more than picking up the slack in Indian demand," argues Marcus Grubb, the managing director at the World Gold Council. China's demand grew 20% in 2011, and Grubb says it will grow by another 20% this year while Indian demand will most likely be flat or down. "What you have seen with China is it has come from a market that didn't really matter to now importing over 400 tons a year." Grubb expects the country to consume 930 tons of gold this year, matching India's demand.

Gold mining stocks were falling Friday. Newmont Mining (NEM) was down 1.9% to $59.30, while Barrick Gold (ABX) was sliding 2.4% to $47.03 after reporting fourth quarter earnings Thursday of $1.17 a share, which was below expectations, on revenue of $3.79 billion, which beat estimates. Barrick, the biggest gold miner in the world, produced 1.81 million ounces at cash costs of $505 an ounce and expects to produce between 7.3 and 7.8 million ounces in 2012 for $520-$560 an ounce. Barrick is trying to grow production 20% in five years from 7.5 million to 9 million ounces.