COMEX gold lower on Tuesday then quickly added to losses when the dollar regained strength from a smaller-than-expected trade gap, which, traders said, prompted funds to liquidate some of their gold holdings.
"When the balance of trade report came out better-than-expected they started selling gold. You get these reactions to the economic reports, when the dollar started firming, so we got some selling in the gold," said one gold trader.
COMEX August gold tumbled $6.20 to $402.20 an ounce, but traded as low as $400.80 from an overnight high at $408.30. The high failed to top last Thursdays 12-week peak at $409.60 an ounce.
The US trade gap narrowed unexpectedly in May as overseas growth and the weak US dollar helped exports soar to record levels. The first improvement in the huge deficit in six months, despite the highest oil prices in nearly 22 years, gave the dollar a big lift on Tuesday.
Gold, which has been tracking the dollars movements almost tick-for-tick lately, slid after the trade datas release, traders said.
Dollar strength compromises the benefits overseas investors reap from purchases in dollar-denominated assets like gold.
At the same time, some analysts said the smaller-than-expected trade gap could prompt them to raise second quarter US growth estimates. A more robust US economy undermines golds prospects as a safe-haven play.
Traders said the selling began overnight, when funds started liquidating long gold positions, and the selling increased when the dollar strengthened.
COMEX estimated gold volume at 24,000 contracts by 1000 am EDT, and silver turnover at 8,000.
Spot gold slipped to $401.40/1.90 an ounce, down from the last quote at $407.45/8.05 late Monday. Tuesdays afternoon fix in London was $400.90 an ounce.
September silver plunged 22.20 cents to $6.32, in a range from $6.28 to $6.5450 an ounce.
One silver trader said locals were selling the metal, which opened with large losses after heavy selling overnight. He added that silver buyers should jump back in if prices fall a few more cents.
Spot silver dropped to $6.28/6.31 an ounce, a huge drop from $6.49/6.52 an ounce at Mondays finish. The daily silver fix was at $6.38.
NYMEX October platinum slide $13.20 an ounce to $804.0. The session range was $802 to $813. Spot platinum fetched $808.00/813.00 an ounce.
September palladium lost 3.00 to $221.75 an ounce. Spot palladium was last quoted lower at $219/224 an ounce.