Strong buying of physical bullion on Tuesday reversed an early gold decline caused by a dollar rise and technical selling, but the metal continued to feel pressure from chart-based sell orders which stopped the recovery. Benchmark gold futures showed a gain in early afternoon, while the spot price was still down a hair after failing to rise above technical resistance at its 14-day moving average near $1,400 an ounce, where selling was triggered, traders said.
"Every time when gold prices drop, we start to see a sharp pick-up in physical demand. Dealers are buying for fear of a sharp correction higher," said Phillip Streible, senior commodities broker at R.J. O'Brien. The metal fell 1.5 percent earlier in the session on worries about continued outflow in gold-backed exchange-traded funds and an equities market rally driven by economic optimism.
Spot gold was down 0.2 percent to $1,390.80 an ounce by 12:17 pm EDT (1617 GMT), after trading as low as $1,373.14 earlier. US Comex gold futures for June delivery were up $3.40 an ounce. Volume was higher than usual due to Tuesday's Comex June option expiration and pent-up trading from Monday, traders said. The US market was shut on Monday due to the Memorial Day holiday. Trading turnover was 360,000 contracts, on track to set the highest turnover since April 15 when gold prices tumbled 8.5 percent.
In physical market news, the US Mint said on Tuesday it is resuming sales of its small, one-tenth ounce American Eagle gold bullion coins, a month after the precious metal's plunge to two-year lows triggered soaring demand. Among other precious metals, silver was down 0.9 percent at $22.43 an ounce. Platinum rose 0.8 percent at $1,457.49 an ounce, while palladium gained 2.3 percent to $752.72 an ounce.