Gold turns lower in New York

US gold futures ended modestly lower on Wednesday, as general concerns about rising interest rates interrupted advance. Higher-than-expected US retail sales and import price data also suggested inflation was heating up, prompting investors to liquidate, traders said.
"Interest rates are totally driving this," said Frank McGhee, head precious metals trading at Chicago's Integrated Brokerage Services LLC. "The last two to three days, gold has been predominantly following the US interest rate market," McGhee said. "With market forces taking interest rates up without central bank action, you are starting to look at liquidity issues."
Gold traders generally fear that a higher interest rate scenario will slow investment demand for gold. As real domestic and international rates rise, liquidity begins to tighten, lifting the dollar.
As the currency strengthens, it hurts dollar-denominated gold purchases in overseas markets. Most-active gold futures for August on the Comex division of the New York Mercantile Exchange settled down 40 cents at $652.70 an ounce, after moving in a range between $656.20 and $649.30.
Noting that gold's decline stopped at August's critical $647 an ounce level, some traders said gold's losses may be limited to that key support level. Inflationary implications from two US economic reports on Wednesday guided both gold and bond prices.
United States Treasury securities prices rose on a bout of short covering, reversing brief losses tied to surprisingly strong US economic data that fanned worries the Federal Reserve may raise interest rates to curb inflation. Gold reacted in tandem with US government bond prices, first falling then reversing course to turn higher in a short-cover rally.
Higher-than-expected US retail sales and import prices exacerbated investor concerns that the Federal Reserve might have to raise interest rates next year to stave off inflation. Sales by US retailers rebounded in May by a stronger-than-expected 1.4- percent. Consumers shrugged off gasoline prices and increased spending on cars, clothing and building materials.
The rise was the biggest monthly gain since January 2006 and was far stronger than the 0.6 percent increase predicted by Wall Street economists in a Reuter's poll.
At the same time, a report showed US import prices increased more than expected for the fourth straight month on a jump in petroleum costs. "Retail sales looked stronger than expected in May and it's probably going to lift estimates on second-quarter GDP growth. Nonpetroleum import prices are up 2.8 percent year on year and it was 2.9 percent a month ago.
The Fed is nervously watching various manifestations of inflation, import prices are one of those," said Pierre Ellis, senior economist, Decision Economics. Comex estimated final gold volume at 71,323 lots, compared with a tally of 63,208 lots on Tuesday. The exchange put options turnover at 10,627 lots on Wednesday.
Spot gold declined to $647.20/0.70 an ounce late on Wednesday, down from $648.30/9.80 at Tuesday's end. London banks set the afternoon gold fix at $647.65 an ounce.
Comex July silver fell 3.0 cents to settle at $13.06 an ounce. The range spanned from $13.20 to $12.8450 an ounce. Spot silver was quoted in after hours trade at $13.07/3.11 an ounce, off $13.06/3.09 late on Tuesday.
It hit a three-week low of $12.79. London fixed silver at $12.86. Nymex July platinum lost $12.90 to end at $1,283.50 an ounce. Spot platinum was seen late at $1,278/1,283. September palladium closed $2.20 lower at $370.65 an ounce. Spot palladium slipped to $362.0/367.0 an ounce.