Gold futures close lower as the U.S. dollar gains ground
Wednesday May 17, 4:18 pm ET
By Myra P. Saefong
CPI rises more than expected; analysts still positive on gold long term
SAN FRANCISCO (MarketWatch) -- Gold futures lost more than $1 an ounce Wednesday as the U.S. dollar rose on data showing a rising rate of inflation.
"While investors are still keen to enter what remains a firm bull market long term, the short-term risk remains to the downside as heavily leveraged funds appear keen to lock in profits," James Moore, an analyst at TheBullionDesk.com, said in a note to clients.
From here, gold will likely be "treading water around $685-$715 for the next week or so before resuming its upwards march," he said.
Fueling the latest pressure on gold prices, the dollar rose against the yen and euro Wednesday, after a hotter-than-expected consumer-inflation report reignited speculation the Federal Reserve will keep lifting interest rates. See Currencies.
But Matthew Parry, an economist at Moody's Economy.com, remains bullish on gold going forward "as we envisage the U.S. dollar falling further."
Gold for June delivery fell to a low of $686.30 an ounce on the New York Mercantile Exchange, before closing out the day down $1.10, or 0.2%, at $691.80.
It touched a high of $712.50 earlier in the session. Prices reached a high of $728 last week, the highest futures prices since September 1980.
On Tuesday, the front-month contract closed up $8, bouncing up from the 5% loss it suffered over the previous two sessions. Read more.
"We believe the fundamentals of gold have not yet changed," South China Research told clients, attributing the recent weakness in gold to profit-taking.
"Market demand for this rate commodity should remain strong, as it offers a hedge against inflation risk, the depreciating dollar and geopolitical tensions, while supply would remain relatively steady," the research firm said.
The U.S. Labor Department said consumer prices rose 0.6% in April, led by higher energy prices.
The core consumer price index, which excludes food and energy prices, increased 0.3%. Economists surveyed by MarketWatch had been expecting the CPI to rise 0.5% in April after a 0.4% gain in March, and forecast a 0.2% rise in the core CPI after a 0.3% increase the previous month.
Gold wasn't the only metal that retreated from earlier highs.
July silver shed 30 cents, or 2.2%, to close at $13.24 an ounce, closing at its weakest level since late April despite an earlier peak of $13.74. And July copper sank 17.05 cents, or 4.4%, to finish at $3.6715 a pound, erasing gains to as high as $3.896 a pound in electronic trading.
June palladium rose $6.10 to close at $383.10 an ounce; July platinum finished up $13.50 at $1,316.40 an ounce.
Indexes fall back
Indexes that track the metals-mining sector mirrored the moves in the precious metals Wednesday. The benchmarks tapped fresh one-month, intraday lows.
The Philadelphia Gold and Silver Index (TSX VENTURE:XAU.V - News) closed at 143.16, down 3.4%, after falling to a low of 142.54. The CBOE Gold Index (CBOE:^GOX - News) declined by 3.7% to finish at 143.68, above 142.98 -- the day's worst level.
The Amex Gold Bugs Index closed at 330.60, shedding 3% despite an earlier climb to 351.85. It touched a low of 328.83. Index component Freeport-McMoRan Copper and Gold (NYSE:FCX - News) lost 6.1% to close at $56.94.
Shares of Goldfields Inc. (NYSE:GFI - News) was one of few gainers, closing up 0.2% at $22.57. The miner said Wednesday that its annual attributable reserve depletion was 4.5 million troy ounces in 2005 and it plans to realize a further 1.5 million ounces of production a year.
The StreetTracks Gold Trust exchange-traded fund (NYSE:GLD - News) fell back by 49 cents, or 0.7%, to close at $68.12, and the iShares Silver Trust ETF (AMEX:SLV - News) lost 3.6% to $130.90.
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