Source: Marketwatch
San Francisco— Gold futures closed with a nearly $6-an-ounce loss Thursday, retreating from a more than 25-year high as the prospect of a pause in rising U.S. interest rates sent the dollar lower, but a surprise rate rise from the Bank of China sparked concerns about a fall in gold demand.
"The gold price continues to trade like a yo-yo with pullbacks finding strong bids and the price moving right back to record levels Thursday," said Peter Spina, an analyst at GoldSeek.com.
Federal Reserve Chairman Ben "Bernanke's inflationary talk, Iran, oil, and U.S. dollar are all major factors under investors' considerations," he said.
"There are many dominating factors to consider and thus, we believe gold may keep moving to the $700 mark in the short-run," he said.
Gold for June delivery closed down $5.70 at $636.30 an ounce on the New York Mercantile Exchange, but not before climbing as high as $646.30, the loftiest futures price in more than 25 years. Earlier, prices fell to a three-session low of $627.
Meanwhile, July silver closed down 34.9 cents, or 2.7%, at $12.59 an ounce after a high of $13.25 even though the Securities and Exchange Commission cleared the way for a silver exchange-traded fund to list. July silver had reached a 23-year high of $14.74 on April 19.
Peter Grandich, editor of the Grandich Letter said he believes a correction in the metals market has been underway since last Thursday.
"We expect it to last for at least several weeks as bullish sentiment hit record highs in many metals, especially copper," he said.
The People's Bank of China surprised the market Thursday by raising interest rates 0.27 percentage point to 5.8%, its first increase since October 2004. See full story. The move comes after first-quarter GDP rose a stronger-than-expected 10.2%.
"The rate-hike news out of China is weighing on the gold market as well as the new margins kicking in and no real new news of uncertainty in Iran," said Kevin Kerr, trader and editor of Global Resources Trader, a newsletter published by MarketWatch, the publisher of this report.
Overall, gold is close to its quarter-century high, and there have been bouts of profit-taking in recent sessions, said Kerr.
"A rate hike in China is not likely to dampen gold buying for long though, and we don't expect to see too much more retracement unless things with Iran calm down quite a bit, which is highly unlikely," he said.
Indeed, Jon Nadler, an investment-products analyst at bullion dealers Kitco.com, said he doesn't believe the rise in Chinese interest rates is deterring would-be gold buyers at this juncture.
"The idea that raising rates in any and all currencies will now start distracting those who buy gold would imply that the gold market is built on very shaky footings and that investors and speculators alike are just itching to bolt away from gold at any moment," he said.
But "if China were to indeed rebalance its $890 billion of holds or its 1% of gold in reserves with a purchase of gold, that would certainly take care of the 'allure' that is being attributed to higher Chinese interest rates by today's sellers of gold," he explained.
Bernanke talk
Adding support to gold prices, Fed Chairman Ben Bernanke said Thursday that the Fed might pause to allow more time to see economic data, and then resume raising rates. He noted that a pause in rate increases wouldn't necessarily mean the Federal Reserve is finished raising rates.
A batch of stronger-than-expected data this week had reversed expectations that the Fed will pause at its May meeting, with federal-funds futures now pricing in a bigger chance of further moves later in the year. Those expectations created some support for the dollar and put some pressure on gold.
But in the wake of Bernanke's comments Thursday, the greenback lost ground against the euro and Japan's yen.
Bernanke's "jawboning (about a pause in dollar rate hikes) more than offset any perceived Chinese rate rise-induced jitters present in the early morning market," said Nadler. "We still do not think that 25 basis points here or there are the be-all/end-all determinants of gold's current and future fate."
And "the impact of future inflation in all goods and services brought about by oil price shocks, and the impact of the outcome of the standoff with Iran will register much larger traces on gold's own seismic scale," he said.
Silver move
As for silver, the silver exchange-traded fund from Barclays Global Investors that has been in the works for over a year is expected to begin trading Friday.
A registration statement for the highly-anticipated ETF from Barclays Global Investors was declared effective at 10 a.m. Eastern time Thursday by the Securities and Exchange Commission, clearing the way for the ETF to list, an SEC spokesman said.
The trust is expected to trade
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