Gold falls as investors grab profit off prior high

NEW YORK Thu Jun 3, 2010 2:01am IST

A gold jewellery shop owner arranges ornaments at a counter in Kolkata May 27, 2010. REUTERS/Parth Sanyal

A gold jewellery shop owner arranges ornaments at a counter in Kolkata May 27, 2010.

Credit: Reuters/Parth Sanyal

NEW YORK (Reuters) - Gold slipped on Wednesday as some investors cashed in on the previous day's two-week high and as risk aversion dissipated upon release of strong U.S. housing data that helped spark an equity market rally in a grab for value among downtrodden shares.

But gold dealings were light and investment demand for the yellow metal as a haven from credit risk lingers and continues to underpin prices.

By 2:00 p.m. EDT, spot gold was bid at $1,220.05 an ounce, down slightly from $1,224.30 in late Tuesday business. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange lost $4.30 to settle at $1,222.60 an ounce.

"We had a dose of profit taking today after some good gains in gold. Also, I think the (U.S.) housing number was good and it took some risk out of the market. That led to some further liquidation in both gold and silver," said James Steel, metals analyst and senior vice president at HSBC in New York

He added, however, that the session was, "Not especially active, with people waiting around to see what happens with (U.S.) payrolls and the credit risk in the euro zone."

Financial and commodity markets were waiting for direction from insights provided by Friday's release of May U.S. non-farm payrolls figures.

While some investors unwound precious metals holdings on Wednesday, they also joined in on the stock market gains.

U.S. stocks rose as investors bought shares beaten down in the previous session's sell-off and data showed pending home sales rose more than expected. .N

Strong pending U.S. home sales data, which rose 6.0 percent in April to a six-month high, gave speculators who had bought gold as a hedge against economic downturn, reason to sell.

The robust U.S. housing news bolstered the dollar for most of the day, but the euro managed to gain 0.1 percent as the New York session wound down.

The euro fell early as European Central Bank board member Christian Noyer was cited as saying the single currency's exchange rate against the dollar was around a 10-year average and not at an unusually low level.

"Fundamentals look quite weak, but...investment demand still looks supportive. Consolidating around these levels looks likely at the moment, but as long as investment demand looks strong, we would expect higher highs throughout the year," said Barclays Capital analyst Suki Cooper.

"We have had some reports that (gold) mine supply is actually doing quite well, and jewelry demand is looking much weaker with the import data from India and Turkey out this week," the analyst added.

CORRELATION

Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, rose 0.3 tonnes to a record 1,268.234 tonnes on Tuesday.

"Many of the current market conditions for gold closely resemble those of Q1 2009 -- elevated coin and bar demand, stellar ETF creations, increased Comex positioning and a positive correlation with the U.S. dollar index," said UBS analyst Edel Tully in a note.

The International Monetary Fund confirmed it sold 14.4 tonnes of gold in April, extending its program of planned bullion sales following the disposal of 5.6 tonnes in February and 18.5 tonnes in March.

Iran's state-owned Press TV said the Iranian central bank would sell 45 billion euros from its foreign exchange reserves to buy dollars and gold.

Platinum was barely higher at $1,545.50 an ounce than $1,545 previously. Palladium slipped to $448 from $454.50 late Tuesday, amid concern over the demand outlook for industrial metals.

Platinum group metals traders said they were waiting for May car sales data from the U.S., China and Europe because of the metals' use in autocatalyst applications. Strong investment demand in PGMs earlier this year seems to have hit a plateau.

Spot silver recovered to $18.27 from an earlier one-week low bid down to $18.06. It remains lower than $18.37 in late Tuesday trade in New York.

(Additional reporting by Jan Harvey; Editing by Marguerita Choy)

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