Gold futures erased gains to end lower on Thursday, after the dollar reversed its course and strengthened on key US economic data that eased inflation concerns.
Traders expected the gold market to remain fickle and continue to move in a wide range. One analyst said that gold could find support at current levels and to possibly retest new highs in the near future. December gold at the Comex division of the New York Mercantile Exchange settled down $2.1 at $621.7 an ounce.
It traded as much as $5.20 higher at $629 after the US government said consumer prices fell by a greater-than-expected 0.5 percent in October. "The CPI number came in relatively benign, which everybody expected, but maybe they didn't expect it to be quite benign, and the dollar came back up," said Jeffrey Christian, managing director at CPM Group.
Estimated Comex volume was 36,000 contracts, including 4,562 switches. Options turnover was 9,000. Turnover in the CBOT electronically traded 100-oz gold contract was 53,891 contracts as of 4:01 pm EST (2101 GMT) (http://www.cbot.com/cbot/pub/page/0,3181,297,00.html).
Reduced inflationary pressures could work either way for gold, which is seen as a hedge against inflation, but could nonetheless derive investment flows if US interest rates, and the dollar, come down.
The Fed has kept its rate on hold at 5.25 percent since June, though minutes from its last policy meeting revealed that inflation is still its main concern. After gold trading ended, crude oil futures extended their losses and fell more than 4 percent below $56 a barrel late Thursday.
Gold is usually traded as a hedge for crude oil inflation risks, but the linkage between the two markets has been weakened in the past month. CPM Group's Christian said that the crude market had "a very small effect" on gold prices on Thursday. Other sources also cited short covering and dollar-related profit taking for gold's choppy trading.
"The market is just volatile. I don't think people are willing to take great risk positions right now," said Bruce Dunn, a senior trader at Auramet Trading. Dunn expected gold to find support at the $620 level due to physical buying, and to trade up in the $640 to $650 range.
"People continue to think that the dollar will weaken, so that should add to gold stability," he added. Steven Platt, an analyst at Archer Financial, said that gold was settling toward a key support area in the $618 to $620 range.
"If we can hold in here overnight, I think the market could actually see some renewed buying interest emerging," said Platt.
Spot gold bullion was last quoted at $618.00/9.00, down from Wednesday's close at $623.70/4.35. Bullion dealers fixed London's afternoon spot reference price at $624.75. Comex December silver closed at $12.945 an ounce, unchanged from Wednesday's close. On Thursday's fix was at $12.94.
Spot silver was last quoted at $12.85/12.92. Nymex January platinum ended up $18.5 to $1,189.30. Spot platinum fetched $1,188.00/92.00 an ounce. December palladium climbed $3.45 to close at $322.25 an ounce. Spot palladium was last quoted at $318/323 an ounce.
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