Gold fell more than 1 percent on Tuesday and may trade around $550 an ounce in coming days as the US dollar strengthened on expectations the Federal Reserve would raise interest rates.
Gold has lost around 23 percent in value since spiking to a 26-year high at $730 on May 12, and dealers said the metal's steady falls since touching that level had forced many players to readjust their positions.
Spot gold fell to $562.00/562.75 an ounce from $568.80/569.50 late in New York on Monday and London's afternoon fix of $571 an ounce. "It wouldn't surprise me to see it head towards the $555 level in the next day or so, if not even today. People are becoming sceptical now about how strong the Bull Run is," said Darren Heathcote, head of trading at N M Rothschild in Sydney.
Gold rose to Multi-year highs last month as fund managers poured money into the metal on worries about rising energy costs, tension in the Middle East and uncertainty over the dollar's outlook. "People are very nervous about where the future holds for commodity prices.
If gold settles in the sort of $500 to $550 level, I think that would be acceptable," said Heathcote. Gold fell around 1.5 percent in the US market on a firm dollar and softer oil prices, which reduced its safe-haven appeal. China's decision to tighten credit lending by lifting banks' reserve requirements also put pressure on gold as analysts believe the move could cut demand for commodities. "We've seen good buying when the price last fell below $550.
I wouldn't say demand is fantastic right now but there's a constant physical buying," said a dealer in Singapore. "We are still looking at demand from Thailand and Vietnam, while Indonesia seems to be well stocked.
I guess the market will test the $560 level and then move up and down in a $5 range," he said. A weaker spot market and declines in New York futures dragged down prices in Tokyo gold futures. The benchmark April 2007 gold contract on the Tokyo Commodity Exchange fell 31 yen per gram to 2,104 yen.
The dollar held near an eight-week high against the yen, staying on a solid footing due to the prospect of higher US interest rates, which tend to boost the dollar and put pressure on gold as an alternative investment.
The Fed is seen certain to lift rates for a 17th straight time to 5.25 percent at the end of June and possibly again in August to dampen inflation. The market awaits US housing data due.
In other precious metals, platinum fell to $1,129/1,135 an ounce from $1,138/1,144 late in New York. Sister metal palladium also fell to $285/291 an ounce from $290/295. Silver edged down to $9.83/9.93 an ounce from $9.97/10.07.