Selling by funds and a lack of buying interest sent U.S. gold and silver futures to lower finishes on Tuesday amid a dollar rally, and traders said prices could fall further if support levels on technical charts were breached.
Most-active gold for June delivery on the COMEX division of the New York Mercantile Exchange settled down $6.20 at $677.30 an ounce, traded from $674.60 to $682.30.
Leonard Kaplan, president at Prospector Asset Management, said that investors were frustrated with holding long positions in gold because prices failed to move higher.
"You're certainly seeing fund selling. And people are getting disappointed with the performance of gold. That's why you are seeing the selling," Kaplan said.
"Theoretically, gold should have been doing much better. You have the euro all-time highs. You have the oil strong. And gold just didn't perform as well," he said.
Kaplan said that the key support level was around $673, which was the recent low, and that prices could fall further if that level was broken.
By afternoon, the dollar erased early losses and rallied after an index of the U.S. manufacturing sector rose to an 11-month high in April. A higher greenback makes dollar-denominated assets like gold more expensive for investors holding other currencies.
U.S. oil futures about 2 percent to below $65 a barrel on expectations of rising supplies and a rebound in refinery throughput. Gold is generally seen as a gauge against oil-led inflation.
COMEX estimated final volume at 69,889 lots and options turnover at 15,698. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 26,657 lots as of 2:21 p.m. EDT (1821 GMT). http://www.cbot.com/cbot/pub/page/
BUYERS ABSENT
James Moore, analyst at TheBullionDesk.com, said in a note that gold opened in a slow mood Monday because Japanese traders were absent for a public holiday.
All Japanese financial markets are closed on Monday, and will be closed again on Thursday and Friday for the "Golden Week" holidays. In addition, trading in China's markets is expected to be slow during a week-long May day holiday period.
"The dollar is likely to be the key driver for gold in the coming sessions with a break through $1.37 against the euro potentially propelling gold back toward the $694 (spot) resistance line," he said.
Moore said, however, there was the risk that further failed rallies would trigger another correction, potentially leading to a test of technical-chart support at around $664 to $669 an ounce on a spot basis.
Spot gold was quoted at $673.70/4.20 an ounce, sharply lower than a late quote of $679.20/9.70 in New York on Monday. London's afternoon gold fix was $673.60.
Karen Jones, analyst at Commerzbank, said in a research note that gold was near-term corrective, and added that a rally would need to overcome a recent peak of $694.60 to reassert the longer term up-move above $700.
In mining news, a nationwide mining strike that has drawn tepid support from Peruvian workers continued for a second day Tuesday and the union federation leading the walkout said talks with the government would resume in the afternoon. [ID:nN01384418]
Peru is among the world's top two silver producers and is No. 5 in gold.
In other precious metals, COMEX July silver closed down 20.50 cents, or 1.5 percent, to $13.370 an ounce, traded from $13.205 to $13.585.
Spot silver was quoted at $13.24/3.27, compared with $13.43/3.48 late Monday. Silver was fixed at $13.450 in London.
July platinum turned to finish up $2.50 to $1,300.90 an ounce. Spot platinum was quoted at $1,283.00/1,288.00.
June palladium edged up 15 cents to end at $374.15 an ounce. Spot palladium fetched $366.00/370.00.
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