Daily Gold Update

Source: Reuters

New York— COMEX gold steadied Monday, as worries that the war in Iraq could be prolonged and bloody pushed aside the investor euphoria of last week, when the U.S.-led invasion went off with few glitches.

Gold's bounce came overseas. New York dealers awaited news from the front and reported light volumes, standing by as optimism about a short war and the early downfall of Iraqi President Saddam Hussein faded and the dollar and stock market tumbled.

"I'm a little miffed at why gold is just treading water here, just staying afloat," said a floor broker. "With the dollar and everything else moving, gold should have a little bit of a lift, and we're not getting it."

COMEX April gold (0#GC:) moved back above the important $330 an ounce psychological level after falling to a 3-1/2 month low on Friday. It settled up $3.40 at $329.50, trading from $326.30 to $330.70.

Estimated volume was 35,000 contracts, including 2,198 switches, each involving two contracts, before April delivery notices start on Monday.

Dealers said the expiration of COMEX April options on Wednesday was keeping the contract glued near the popular $330 strike price.

"We have end of month coming up, you have options expirations at the end of the week, you have the end of the fiscal year in Japan," observed a bullion dealer. "So there is plenty of economic data the market will probably pick up as we move through tonight and we'll see what happens in Iraq."

Spot gold closed at $329.50/0.25, up from $325.80/6.55 late Friday. London dealers fixed the afternoon spot reference price at $329.45 an ounce.

The dollar fell to $1.0654/57 per euro, from $1.0520/26 late Friday. The Dow Jones industrial stock average was down over 300 points Monday afternoon, after blue chips enjoyed their best week in more than 20 years last week.

Iraqi state television showed footage of Saddam twice Monday — dashing hopes of some that he had been killed in the first air raid on Baghdad — hailing the Iraqi military on the fifth day of the war to overthrow his government.

U.S. Marines took significant casualties in a stiff firefight in the Southern city of Nassiriya, a key to opening a second route north to Iraq's capital.

Iraq said Monday that two U.S. helicopters were shot down south of Baghdad, saying it might show the pilots on television as it did with other captured and killed soldiers on Sunday.

"Where everybody was 'hurrah' on Friday, the weekend proved that war is still hell and nothing is easy," said another COMEX broker. "So, things have turned around … and people have gotten a little uncomfortable with their comfort."

Profit-taking in gold kicked in in earnest more than a week ago as speculators followed a "buy the rumor, sell the news" strategy in the days before fight actually started.

The net speculative long position in COMEX gold futures fell to 21,421 contracts from 33,349 contracts in the week to last Tuesday, the CFTC said Friday.

Gold futures hit a 6-1/2 year high on Feb. 5 at $390.80 an ounce. At that time, funds were net long more than 66,000 contracts, among the most overbought positions on record.

"Much of gold's war premium has been rung out of the market. Consequently, even a swift U.S.-led victory may not send gold prices a lot lower," David Rinehimer, head of commodity research at Salomon Smith Barney, wrote in a report.

May silver (0#SI:) rose 1.5 cents to $4.368 an ounce, trading from $4.355 to $4.395. Spot silver (XAG=) was last quoted at $4.37/39, up from $4.34/36 at Friday's close. The fix was $4.3775.

NYMEX April platinum (0#PL:) fell $9.10 to $643 an ounce, hitting its lowest in almost eight weeks at $642.20. Spot platinum (XPT=) closed at $650.00/655.00 an ounce.

June palladium (0#PA:) went down $13.45 at $216.55 an ounce. It hit a contract low of $216 as spot palladium (XPD=) fell to its lowest since Jan. 1998, fetching $213.50/218.50 an ounce.