Gold Falls As Dollar Rises; Hedge Funds Pull Back

Gold futures lost further ground in electronic trade Monday, with a rising dollar weighing on the overall metals complex, while more hedge funds pulled out of the metal last week.

Comex gold for August delivery  retreated $11.70, or 0.9%, to $1,280 an ounce during East Asia hours, after having surrendered almost $100 over the course of last week’s trading.

The fresh losses came as the U.S. dollar extended its recent advance, with the ICE dollar index  rising to 82.622 Monday from late Friday’s 82.302.

A stronger dollar tends to weigh on gold and other dollar-denominated commodities, as it makes them more expensive to holders of other currencies.

The metal appeared to have its work cut out for it in terms of reversing the trend. Dow Jones Newswires cited Barratt’s Bulletin chief economist Jonathan Barratt as saying a break above $1,330 for spot prices this week would be needed to “cement a technical low” and put a floor under prices.

Spot gold traded at $1,295.36 an ounce early Monday, the report said.

Still, Barratt said problems in China’s financial system — where interbank rates surged last week — could spur safe-haven purchases from Chinese investors.

In addition, data last week showed hedge funds reduced net-long gold positions by 29% as of June 18, Commodity Futures Trading Commission data showed, according to Bloomberg. That was the biggest reduction since February.

Also, Barclays pointed out that gold exchange-traded product holdings now stand at 2,260 tonnes, after losing 15.7 tonnes over last week, and the downside could go deeper.

“As we have highlighted previously, on balance, there have been more ETP outflows between $1,300/oz and $1,500/oz, and most of the recent accumulation in gold ETPs took place above the $1,500/oz price point,” said Suki Cooper, a precious metals analyst at Barclays Capital, in a note. “However, with prices falling below $1,300/oz, this opens up a new bracket of potentially cash negative positions, given the positive number of shares accumulated between $1,200/oz and $1,300/oz.”

Other metals futures were also lower Monday. July silver  dropped 43 cents, or 2%, to $19.53 an ounce, while September palladium  traded $9.70, or 1.4%, lower at $665.05 an ounce, and July platinum  fell $9.70, or 1.4%, to $1,353.70 an ounce.

Copper for July delivery  surrendered 8 cents, or 2.7%, to $3.01 a pound, more than erasing Friday’s 4-cent advance.

Source : Marketwatch