Gold futures fell on Tuesday after rising for eight straight sessions on speculative buying, as profit taking dragged it down from a quarter-century high of nearly $545 an ounce, dealers said.
Gold's pullback pressured other precious metals futures, with silver eroding from Monday's 18-year peak above $9 an ounce, platinum sinking from a prior 26-year high and palladium losing more than 8 percent from its previous 19-month peak.
By 10:09 am EST, February delivery gold was down $8 or 1.5 percent at $523.50 an ounce at the New York Mercantile Exchange's Comex division, trading from a session high of $533 to $524.60. On Monday's session peak of $544.50 was the strongest price for a benchmark gold futures contract since March 1981.
Traders were ditching some positions as the market turned increasingly cautious, market sources said.
Gold had fallen about 3 percent at one point in overnight trading as Japanese retail investors locked in profits following recent surges. "We're getting some liquidation perhaps off the change in margin requirements on the TOCOM (Tokyo Commodity Exchange)," said Tom Boustead, a metals analyst with Man Financial. "Also you may be seeing some positioning ahead of the Federal Reserve meeting and we are getting some book squaring as it is the end of the year, when the market tends to thin out a little. "I think this is a correction on what is still an up-trend in gold, but I don't know where the downside is yet," Boustead said. George Gero, vice president at RBC Capital Markets Global Futures, said trade selling emerged at the open and a cluster of stop loss sell orders was building below $520 an ounce.
Investors had been piling into precious metals and other commodities in recent weeks to shift money away from some weakness in markets such as currencies, equities and bonds.
Analysts said positive supply/demand fundamentals and ideas that perhaps some of the world's central banks were buying gold, among other mostly economic factors fuelled gold's recent rally. But players felt gold was technically at risk of a sell-off as futures appeared heavily overbought with the net fund long position on Comex standing near a record high.
Selling on the Tokyo Commodities Exchange pushed all futures contracts limit down overnight after TOCOM announced on Monday it would make an emergency increase on margins due to the recent extreme price jumps, an analyst said.
"The speed of the fall yesterday goes some way to reinforce the recent madness of crowds theory and as we approach year-end the market becomes more susceptible to liquidation as traders look to lock in profits," said James Moore at TheBullionDesk.com.
"For the moment, the tone remains bullish and is likely to stay that way for some time to come, and despite the risk of a short-term dip back to $500 the market looks set to extend its gains in 2006," Moore said in a daily note. Commitments of Traders data from the Commodity Futures Trading Commission showed the net fund long exposure in Comex gold futures was at 167,413 contracts as of December 6. The record high in non-commercial net longs is 170,424 contracts from October 18.
Markets expect the Fed to raise its key rate for a 13th straight time to 4.25 percent at a policy meeting Tuesday afternoon. However, many people think the central bank will tweak its language and signal a peak in the cost of borrowing.
The rise in rates has been the main driver of the dollar's 18 percent rise against the yen and 14 percent gain against the euro this year. The dollar's strength was unusual in that gold also was rising. The two tend to move in opposite directions.
Chartists peg key support in Comex gold at $520, $510 and $500, with resistance at $550 and then at $560. The all-time peak for futures, hit in January 1980, was $873. Spot gold fell to $520.30/521.00 an ounce, from $527.90/528.70 last quoted in New York.
The metal briefly touched a high of $526.50 and a low of $520.25. On Tuesday's latest fix in London was at $522.50. Comex March silver futures dropped 3.6 percent or 31.7 cents to $8.565 an ounce, trading from $8.95 to $8.555.
Spot silver sank to $8.47/50, below its prior New York close at $8.78/81. The London silver fix was at $8.74. Nymex January platinum lost $29.10 or 2.9 percent to $989 an ounce. Spot platinum fell to $984/988.
March palladium plummeted more than 8 percent or $24.35 to $268 an ounce. Spot was at $263/267.
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