Daily Gold Update

Source: Reuters

New York— COMEX gold tumbled back below $400 an ounce Tuesday as traders took profits and Federal Reserve policy makers opened two-day talks expected to produce the first interest rate increase in four years on Wednesday.

The market showed disappointment on golds failure to hold near Mondays 10-week high, after hurdling the psychological $400 mark last week. The incentive to take profits was strong in the run-up to June 30 and few players wanted unnecessary market risk before the U.S. Independence Day holiday on Monday.

"Positioning ahead of the Fed meeting tomorrow, month-end, quarter-end, there are lots of reasons you can give for people taking some profits," said David Rinehimer, head of commodities research at Citigroup Global Markets.

"The markets are going be sensitive to the geopolitical situation, too," Rinehimer said.

August settled down $8.50 at $392.80 an ounce, trading from $402.20 to $391.00. Estimated volume was 76,000 contracts.

The benchmark contract reached $405.10 on Monday to mark its highest since April 19, benefiting from a sell-off in the dollar as traders took profits on weeks of speculation that rates would be hiked by a quarter percentage point to prevent the economy from overheating, after the Federal Open Market Committee meeting.

Golds drop accelerated after a midmorning report showing U.S. consumer confidence rose to a two-year high in June.

"Any curve already has an implicit hike in it. So mathematically it�s in there," said a bullion trader, referring to money market yield curves. "Spiritually, how does a fixed income investor react? I don�t know. What does that mean for gold and how does that all tie in with what�s happening in Iraq at same time? It may turn out to be a pretty neutral event."

The dollar rose to $1.2118/24 per euro, from $1.2183/87, siphoning investor funds from gold.

Dealers said much of the new money which has come into the gold market this year has been moved around based on technicals. Tuesdays break below the 100-day and 200-day moving averages at $400.20 and $399.30, scared some investors out of the market, just at they were important in golds break upward last week.

Spot gold fell to $392.00/2.75 from $400.00/0.50 at the previous close. The afternoon fix in London was $394.40.

September silver became the active contract Tuesday, before Julys first notice day on Wednesday. September slid 4.5 cents to $5.853 an ounce, trading from $5.97 to $5.80 and extending a 22.9 cent-slide in futures on Monday.

Some 44,000 lots changed hands, of which 20,658 was from 10,329 switches.

Spot silver was quoted $5.83/86, down from late Mondays $5.90/93. The London fix was $5.89.

October platinum went down $9.70 to $770.60. Spot fetched $775/780. September palladium was $8.10 lower at $219.60 an ounce. Spot was quoted $215.50/221.50.