German cheer drops euro gold price to 8-month low

The price of February gold contracts continued to drift lower on Friday, capping an almost 2% loss for the precious metal over the shortened trading week.

By lunchtime gold was changing hands for $1,656 an ounce, down $13 on the day and $40 below Tuesday's dealings when the metal failed to breach the psychologically important $1,700 level.

The yellow metal has also been hurt by a string of positive economic data coming out of the US – and for the first time in a while, Europe led by Germany  – which means a quicker end to the ECB and Federal Reserve's ultra-accommodative monetary policy and quantitative easing program.

QE, which floods markets with cheap money, increases gold's allure as a hedge against inflation amid currency depreciation.

Yesterday billionaire hedge fund manager George Soros called QE "about as close as you can come to a free lunch" and told CNBC that "once the [US] economy gets going, then interest rates are going to take a big leap," and that it is "most likely to happen this year."

"Europe is suddenly in vogue, and those who bought gold as a hedge against it are getting out and into equities instead," Saxo Bank vice president Ole Hansen told Reuters:

"Euro gold is also hurting some here.

"If I were a hedge fund, I would sit on my hands and wait for a break of $1,700, as we could easily see lower levels before this stabilises."

Priced in euro, gold is at an 8-month low.

Traders are also worrying that without a clear catalyst to push prices higher, gold will continue to drift lower in the coming weeks.

Marketwatch quotes Fawad Razaqzada, technical analyst at GFT Markets, as saying "for now, the near-term outlook for gold looks bearish 'with the downside becoming the path of least resistance.'"

Gold is coming off a 12-year winning streak after a 7% annual gain in 2012, but has now fallen below its price this time last year.