Gold eased back towards $1,330 an ounce on Tuesday as a firmer tone to the dollar prompted buyers to take to the sidelines after the metal's biggest one-day price rise in over a year. The precious metal rallied 3 percent on Monday as a break of technical resistance at $1,300 and then at $1,322 prompted dealers holding short positions, or commitments to sell at a certain price, to close out those bets.
Gold had already started to rise on assurances from the US Federal Reserve last week that any tapering of its quantitative easing policies, fears of which drove gold sharply lower in June, would depend on data. "I tend to think (the move higher) was just a reaction to how low gold has been," Citigroup analyst David Wilson said. "I do think it will go lower again."
He added, "I can't see any real reason to build significantly on holdings. There's no inflationary pressure. If anything the dollar is likely to strengthen on the back of greater noise over tapering. I don't think this is a sustained directional change." Spot gold was down 0.4 percent at $1,329.90 an ounce at 1344 GMT after hitting a one-month high at $1,338.91 on Monday. US gold futures for August delivery were down $6.50 an ounce at $1,329.50.
The dollar index edged up 0.1 percent, although it remained near one-month lows as a retreat in benchmark US 10-year Treasury yields gave investors less incentive to buy the US currency. Softer yields, which reduce the opportunity cost of holding non-interest bearing bullion, have also taken some pressure off gold, analysts said. Gold's weakness in early July coincided with a rise in 10-year Treasury yields to near two-year highs.
Liquidation continued from gold-backed exchange-traded funds, with outflows from gold ETFs tracked by Reuters totalling 10 tonnes on Monday. The world's largest, the SPDR Gold Trust , reported a 1.2 tonne drop in its holdings. Outflows from gold ETFs, which issue securities backed by physical stocks of bullion, have averaged 20 tonnes a week this year, Reuters data shows. Investors say they want to see outflows steady before buying back into gold. "Given the ongoing ETF outflows, we believe it is still too early to describe this (latest rise in gold prices) as a lasting trend reversal," Commerzbank said in a note.
Among other precious metals, silver was down 1.7 percent at $20.22 an ounce, having risen 5 percent on Monday. Spot platinum was down 1.1 percent at $1,423.24 an ounce, while palladium was down 1.7 percent at $731.22 an ounce. Platinum's premium over gold eased back to around $95 an ounce from last week's near two-year high of $140 an ounce.
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