US gold futures fell in early trade Thursday as a stronger dollar offset rising oil prices despite comments on inflation worries from the Bank of England and the European Central Bank.
At 10:17 am EDT (1417 GMT), most-active gold for August delivery on the COMEX division of the New York Mercantile Exchange was down $5.50 at $649.90 an ounce, dealing between $649.60 and $658.70.
Joseph Guzzardi at Sabin Commodities said from the COMEX floor that it was unlikely the higher energy prices would boost bullion on Thursday because of weak market participation as investors returned after the US Independence Day holiday on Wednesday.
US oil futures jumped 1 percent and surpassed $72 a barrel Thursday morning. Gold is generally seen as a hedge against oil-led inflation. On Thursday, British interest rates went up for the fifth time in less than year, hitting a six-year high of 5.75 percent as the Bank of England kept an eye on inflation.
Meanwhile, the European Central Bank kept interest rates at 4 percent, and ECB President Jean-Claude Trichet said he saw no need to change the expectations of financial markets - which see a rate rise after the summer.
Guzzardi said that higher interest rates could hurt bullion prices, but he had not seen a response in the metals market yet. John Reade, head of precious metals strategy at UBS, said in a note to clients that the six gold exchange-traded funds (ETFs) that he followed had lost about 29 tonnes of gold since they hit a peak in bullion holdings on April 19.
Reade said that the heavy outflows indicated that ETF might be a source of selling during deeper sell-offs. Last week, worries about the credit markets prompted jittery investors to sell precious metals and liquidate bullion holdings in StreetTRACKS Gold Shares, the largest gold ETF.
In market news, the Bank of Spain said it sold no gold in June after running down its reserves in each of the previous three months. Also, Dubai's gold futures exchange said on Thursday it traded 48,860 gold futures contracts worth $1.03 billion in June, while total open interest hit a record high. Spot gold dipped to $650.85/$651.45 from $654.40/$655.20 late European trade on Wednesday. The London afternoon gold fix was set at $651.00.
COMEX September silver was down 7.50 cents at $12.610 an ounce, dealing between $12.590 and $12.780. Spot silver was quoted at $12.50/12.54 which was off the late Wednesday European quote of $12.62/12.66. London silver was fixed at $12.600. NYMEX October platinum climbed $5.80 to $1,300.00 an ounce. Spot platinum traded at $1,288/1,292. September palladium was down $1.00 at $368.00 an ounce. Spot palladium fetched $364/368.
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