Gold in New York tumbled 3.4 percent to close at a one-week low on Tuesday, as speculative selling sparked mainly by a stronger dollar slammed the market below chart support at $640 an ounce, analysts said.
August delivery gold at the New York Mercantile Exchange's COMEX division dropped $22.40 to settle at $629.50 an ounce, after trading between $655.50 and $629, which marked its cheapest price since last Tuesday.
Gold pulled back after the dollar rallied to near three-month highs on data showing US producer prices rose in June, backing a view that the Federal Reserve will keep raising interest rates to combat inflation. Other metals prices and crude oil also staged a retreat by midafternoon on a late burst of speculative selling.
"We saw heavy fund long liquidation and significant profit-taking," said David Meger, an analyst with Alaron Trading, adding that investors were building on Monday's fall in gold after the market failed to hold at a seven-week high.
Rising oil in early trade failed to attract much investment buying in gold as traders considered factors other than the ongoing hostilities between Israel and Hizbollah.
Israeli warplanes battered Lebanon on Tuesday, killing 31 people, and more Hizbollah rockets hit northern Israel, killing one, with no sign that diplomacy would halt the week-old conflict any time soon. The dollar index reached its highest since late April while the euro slipped to a session low at $1.2475.
Data showing that the United States attracted a net $69.6 billion of capital inflows in May, above forecasts and more than needed to cover that month's trade deficit of $63.8 billion, also boosted the dollar and hit gold.
Traders now were awaiting US Senate testimony from Federal Reserve Chairman Ben Bernanke on Wednesday for clues on the outlook for interest rates. Spot gold likewise plummeted to its lowest level since July 11, at $628.90 an ounce. It was last quoted at $630.30/631.30 an ounce, way below Monday's late New York quote at $650.30/651.80.
Bullion dealers set the daily afternoon spot reference rate at $645 in London.
Alaron's Meger said the sell-off was "a needed correction by a market that had been overdone" in the last several weeks. "As much as this thing could correct further, there's going to be a nice buying opportunity coming up, going into the months ahead, because longer-term I don't think the fundamental conditions behind this market being strong have dissipated."
COMEX September silver fell 56.5 cents or 5.1 percent to end at $10.5250 an ounce, after dealing from $11.22 to $10.48 - a low since June 30. Spot silver sank to $10.48/10.58 an ounce, from $11.02/11.12 previously. Tuesday's fix reached $11.01. NYMEX October platinum closed down $15.40 at $1,234.60 an ounce. Spot platinum fell to $1,217/1,223. September palladium shed $8 to $314.20 an ounce. Spot palladium last reached $308/313.
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