Gold gave up gains in late trade on Tuesday after hitting a fresh three-week high as continued gold selling by European central banks dampened buying. A decline in the dollar after comments by the US Federal Reserve chairman on economic growth failed to generate interest in the metal, and analysts saw range-trading in the near term.
Spot gold rose as high as $673.95 before falling to $670.80/672.30 an ounce by 1413 GMT, against $670.50/672.00 late in New York on Monday. "The market was long, probably on the back of a weakening dollar, expecting more of a reaction as we moved into the New York market. In fact, there has been some selling since the opening and longs have been squeezed out," said David Holmes, director of precious metals sales at Dresdner Kleinwort.
"I am sure the move is partly technical. We are likely to remain rangebound," he said. The dollar fell broadly after Federal Reserve Chairman Ben Bernanke said he expected the US economy to continue growing but weakness in the housing sector would probably be a drag.
Gold often moves in the opposite direction to the dollar and is generally seen as a hedge against oil-led inflation. But slightly bearish was news that the Bank of Spain sold almost a million troy ounces of its gold reserves during May, following sales of 1.3 million ounces in both March and April.
"The sale of what looks to be about 30 tonnes of gold is another good amount, although less than the 40 tonnes sold in each of March and April," said John Reade, head of metals strategy at UBS Investment Bank.
He said probably Spain was selling gold because the metal was making up an increasing proportion of its reserves. It also appeared likely that the Bank of Spain had received the 100 tonne quota that the Bundesbank had no plans to use, he said.
In another news, the European Central Bank said gold and gold receivables held by eurozone central banks fell 29 million euros to 179.995 billion euros in the week ended June 1. While gold's longer-term outlook was more positive, with some still eyeing a move back over $700, the metal failed to crack that level three times earlier in the year. It peaked at $693.60 in April, which was its highest in 11 months.
Jon Bergtheil, global metals strategist at J.P. Morgan, noted that commodities as an asset class were not performing as well as they had done in previous years. "In the last year, they have significantly underperformed equities," he said.
In other precious metals, silver matched Monday's five-week high of $13.79 an ounce and was last quoted at $13.74/13.77, against $13.69/13.73 in New York. Platinum dipped to $1,291/1,296 from $1,296/1,300, while palladium was at $365/368 an ounce, compared with $369/373 in the US market.
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