Weakness in the equity markets and a stronger dollar weighed on US gold futures early on Thursday, as jittery investors were spooked by the potential of a liquidity squeeze and declines in markets outside of the commodity sector.
"It looks like we are just following the S&P and the stock market for the last couple of weeks here. Every time the stocks made a new low or they came off a little bit, we would be following that," Joseph Guzzardi of Sabin Commodities said from the COMEX floor in New York.
At 10:19 am EDT (1419 GMT), most-active gold for December delivery on the COMEX division of the New York Mercantile Exchange was down 30 cents $675.10 an ounce, trading between $671.80 and $676.80.
US stocks opened lower, after Wednesday's solid gains, with the broad-based Standard and Poor's 500 index erased initial losses but was still down, as the uncertainty about when the Federal Reserve would cut interest rates rattled investors. Guzzardi expected gold futures to trade sideways to a little lower in the near term. Recently, investors in the precious metals complex often take trading cues from the stock market as fears about a global credit squeeze linger.
Gold and other precious metals were often sold off when the stock markets tumbled, as investors opted for liquidity and to cover margin calls of investments tied up in other markets.
Pradeep Uni, Assistant Vice President of Vision Commodities Services in Dubai, said in a client note that sentiment among gold investors remained nervous even though bullion had recouped most of its losses since its sell-off in early August. "Investors at large are still unclear weather this relative stability in equity markets and the rebounding crude prices are signals of the end of credit crunch," Uni said.
Earlier on Thursday, a government report showed that the US economy grew at an annual rate of 4 percent in the second quarter, as strong business investment led the fastest pace of expansion since early last year.
The Commerce Department raised its estimate of gross domestic product from a 3.4 percent gain that it published a month ago. That was in line with Wall Street economists' forecasts and far outstripped the first quarter's anemic 0.6 percent rate of expansion. Traders said that the precious metals complex was poised to move higher because the contract roll-over of silver and palladium futures were completed.
The first notice day of both September silver and palladium contracts is Friday, and investors should have already finished switching their September futures into December contracts, traders said. "We've just had the roll. So it should get interesting in the next month," Guzzardi said.
Spot gold was quoted at $666.20/667.00 compared with $666.50/667.10 late Wednesday. The London morning fix was set at $666.30 an ounce. COMEX December silver was up 2.3 cents at $12.03 an ounce, dealing between $11.890 and $12.075. Spot silver was quoted at $11.83/11.88 an ounce, compared with $11.84/11.89 late Wednesday. London silver fix was at $11.86.
For the platinum group metals, tight supply will push the platinum market back into deficit this year and palladium will be balanced due to lower Russian sales, the world's second biggest platinum producer Implats said on Thursday. "We believe that supply side issues have become much more important this and next year and will result in the (platinum) market moving back into deficit," Marketing Executive Derek Engelbrecht told a results presentation.
NYMEX October platinum was up $2 at $1,268.80 an ounce. Spot platinum fetched $1,263.30/1,270.30. December palladium dropped $3.55, or 1.1 percent, to $332.25 an ounce. Spot palladium was quoted at $326/330.
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