US gold futures finished slightly lower on Monday, as the precious metals market took a breather from last week's rally, but a weakened dollar and more bullish sentiment limited losses. Bullion's recent rise prompted investors to increase holdings in StreetTRACKS Gold Shares, the world's largest gold exchange-traded funds (ETF) by far, to a near-record level.
"There is good-sized buying out there with the current market price. We are also seeing the buyers move up their targets a little bit. I think the market will be supported underneath here," said Paul McLeod, vice president of precious metals at Commerzbank in New York.
Most-active gold for August delivery on the COMEX division of the New York Mercantile Exchange settled down $3.20 at $681.50 an ounce, dealing between $680.50 and $685.80.
On Friday, gold futures rallied to a two-month high of $687.60, which marked their loftiest level since May 10. Last week, August gold gained nearly $18, or 2.6 percent, as the dollar fell to record lows against the euro on worries related to US subprime mortgage sector.
Most recent data showed bullion held by StreetTRACKS increased to 497.15 tonnes, near its all-time high of 500.72 tonnes set on April 17. It has also gained more than 20 tonnes above 473.45 tonnes reported on July 6.
Changes in gold and silver ETF holdings are closely watched by market participants because sharp inflows in gold ETFs could be a bullish signal as they show longer-term retail investors are entering the market.
McLeod said he expected that bullion held by gold ETFs would continue to grow in the second half of the year as investors continued to initiate or add to their current holdings in the ETFs.
Stephen Briggs, metals analyst at Societe Generale in London, said in a client note that gold's recent rally was largely driven by the institutional market, and the increases in holdings in ETF suggested that there was a renewed wave of both institutional and retail investment activity in North America, in particular.
The dollar was little-changed near its record low against the euro on Monday as dealers awaited economic data later in the week to see whether trouble in US credit markets has spread to other sectors.
Jon Nadler, analyst at Kitco Bullion Dealers, cautioned that gold could retreat if the US dollar strengthened. "Having depended so heavily on the erosion of the dollar to achieve the latest $40 move upward, gold players might have to act swiftly if and when a rebound occurs in the currency - even one of a small magnitude," Nadler said.
COMEX estimated final volume at 70,819 lots, and gold options at 7,706. Turnover at Chicago Board of Trade's electronic 100-oz gold futures was 16,452 lots at 3:01 pm EDT (1901 GMT) http://www.cbot.com/cbot/pub/page/ In industry news, price volatility of gold declined in the second quarter, as a weakening dollar boosted bullion's average price 3 percent to about $667 per ounce, the World Gold Council said in a report on Monday.
On Friday, the Commodity Futures Trading Commission (CFTC) said in its latest Commitment of Traders report that non-commercial investors, or speculators, raised their net longs to 79,719 lots from 72,220, as open interest fell to 385,595 contracts from 387,916 previously.
At 3:13 pm, spot gold was quoted at $681.00/681.80 an ounce, lower than $682.90/683.70 late Friday. The London afternoon gold fix was $682.00. COMEX September silver finished down 7.3 cents at $13.330 an ounce, trading between $13.310 and $13.480.
Spot silver was quoted at $13.23/13.28 an ounce, compared with $13.27/13.32 late Friday. London silver was fixed at $13.340. NYMEX October platinum fell $4.70 to end at $1,341.90 an ounce. Spot platinum fetched $1,328/1,332 an ounce. September palladium closed down $1.25 at $373.50 an ounce. Spot palladium was quoted at $369/372 an ounce.