Comex gold forfeited gains but retained its shine on Wednesday, ending fractionally lower on pre-holiday profit taking and fund liquidation before the June contract goes into delivery on Friday.
Futures hit a 20-day high in trade after news that US April durable goods orders fell 2.9 percent knocked the dollar to a 20-day low versus the euro. Spot hedging against the expiration of over-the-counter options also supported prices around $390 an ounce.
There was reluctance to keep buying before the long weekend and benchmark June gold settled off 10 cents at $388.30 an ounce, snapping a three-day Bull Run. It traded between $387.60 and $392.10, its best price since May 6.
"We saw a little producer selling and some Comex selling, it must be fund driven," said Robert Gottlieb, head of bullion trading at HSBC.
"You might be seeing some residual longs just getting out before rollover."
Funds are busy switching June positions to August before first notice day on Friday. Comex metals trading also close that day and US exchanges will be closed on Monday for Memorial Day.
Estimated volume was 130,000 contracts, of which 53,946 came from 26,973 switches.
As of Tuesday, August open interest had risen to 81,669 and June still had 86,047 lots left.
The euro rose to $1.2115/19 from $1.2096/02 late on Tuesday, making dollar-priced commodities more affordable in Europe.
A desk broker said the US dollar index appeared to be breaking lower, which he predicted would be positive for precious and base metals. Like gold, the index hit its lowest since May 6 and a move below the May 5 low at 89.22 would be seen as confirming an end to a three-month upturned.
"The euro is probably breaking higher and that will probably lead gold back up," he said.
"Gold already looks like it's trying to break out in turn."
Dealers said spot gold firmed again after the close after US Attorney General John Ashcroft said Washington had credible intelligence that al Qaeda is plotting a big attack inside the country or on US interests in the coming months.
Spot gold closed at $388.50/9.25, compared to $388.10/8.85 late on Tuesday. London bullion dealers fixed gold in the morning at $389.65. Chartists see gold prices poised to retest the $400 an ounce level.
Gold has been trending higher since hitting a seven-month low at $371.30 on May 10. With crude oil prices above $40 a barrel, traders are worried about the US economic recovery and some think the Federal Reserve could delay an expected interest rate increase, despite voicing concerns about rising inflation.
This could be an ideal condition for gold, which looks better versus the dollar when US deposits stay cheap and is also considered an inflation hedge.
July silver slipped 3.0 cents to $6.055 an ounce, trading to $6.01 from peak at $6.17, it's highest since May 5.
Spot silver fell to $6.04/07 from $6.07/10.
The fix was $6.11. July platinum rose $1.80 to $836.40. Spot platinum fetched $835.00/840.00. June palladium slipped $2.50 to $250.75 an ounce. Spot closed at $248.50/254.50.
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