US gold futures trimmed early losses on Tuesday to turn higher on short covering and strong dealer buying as the dollar lost ground, only to be hit again when some players exited at higher levels, traders said.
After Monday's rout, some players engaged in a tug-of-war as dealers saw value at the lower levels, especially when the dollar eased against the euro. But others thought the correction off the recent 28-year highs had not gone far enough, with the market still heavily long gold contracts. "This morning's bounce was caused by some strong dealer buying after it traded down to the $790's late Monday. It was more related to short covering, or mines buying back positions, which would also be short covering," said one gold trader.
Most-active December gold on the Comex division of the New York Mercantile Exchange lost $6.10 to $801.60 an ounce. Overnight in electronic trade, it extended the 10-day low to $791.70 per ounce. Tuesday's high reached $810.40. The dollar fell modestly against most currencies. It resumed its long-term decline after a brief respite on Monday undermined gold and other dollar-denominated assets that have done well in overseas markets on dollar losses.
The low-yielding yen had surged in recent days as renewed fears that credit-related problems could spread to the wider US economy sapped risk appetite among investors and made their carry trades less attractive.
Many participants sold gold to buy back the yen they sold to fund purchases of higher-return currencies. While the dollar was higher against the yen by Tuesday, some gold sellers still felt vulnerable to the latest currency fluctuations as well as gold's heavily overbought state.
At 09:37 am EST, spot gold slipped to $799.35/800.05 an ounce from $803.10/803.90 in New York Monday afternoon. London bullion dealers fixed the morning spot reference price slightly lower at $803.40.
Comex December silver climbed 14.80 cents to $14.91 an ounce. On Monday, it plummeted 78.3 cents, or 5 percent. The spot silver quote firmed to $14.86/14.91 an ounce, up from $14.55/14.60 late Monday in New York. London silver was fixed at $14.6750.
Nymex January platinum rose $27.20, or 1.96 percent, to $1,418 an ounce. It advanced to a session high at $1,427, after falling on Monday to a low of $1,388.80, its weakest since October 10. Spot platinum was quoted at $1,414/1,418. December palladium added 75 cents to $373 an ounce. Spot palladium was higher at $367/370.