Daily Gold Update

Source: Marketwatch

San Francisco— Gold futures closed Wednesday with a loss of nearly $15 an ounce, with the market still reeling a day after a global stock-market sell-off.

But prices finished higher for the month and most analysts remain convinced that the decline for the day was only a temporary setback in the metal's climb toward $700.

"For many months now, gold has managed to correct very overbought conditions in a manner of a day or two, and it would not surprise me that it has done so again," said Peter Grandich, editor of the Grandich Letter.

"Virtually all surprises have been to the upside, and I suspect another one is coming as early as tomorrow — with a quick run towards $700 faster than most can imagine today," he said, in e-mailed commentary.

Gold futures for April delivery dropped as much as $23.20 during Wednesday's session to a more than two-week low of $664 an ounce on the New York Mercantile Exchange. It closed at a one-week low of $672.50, down 2.1%, or $14.70.

The last time the market saw a pull back like this was during the Jan. 3 to Jan. 5 period, when prices fell nearly $40 in two days, according to Neal Ryan, director of economic research at Blanchard.

Despite the day's losses, the contract ended the month of February with a gain of $14.60, or 2.2%.

May silver closed the day down 3.1%, or 45.5 cents, at $14.235 an ounce, touching $14.12 at its worst point. It also managed to post a gain for the month, 3.9% higher than the Jan. 31 closing level.

"With the pullback in so many markets, it is fair to say that the gold and silver pullback is not about gold and silver," said Julian Phillips, an analyst at GoldForecaster.com.

"These falls [have more] to do with short-term traders perceptions and technical selling," he said in e-mailed comments.

On Tuesday, the Dow Jones Industrial Average posted its biggest one-day decline since the terror attacks of Sept. 11, 2001, and fell as much as 500 points to its worst level after a sell-off in China fueled concerns about growth.

"This massive equity market liquidation [Tuesday] has sparked concern across the spectrum of markets as traders fear cash is the best position to be in," said John Person, president of Nationalfutures.com.

"There could be a fall-out from large hedge fund losses, so traders are bailing on commodity positions," he said, in e-mailed comments.

Indeed, "there is a liquidation of assets across the board here — funds forced to raise capital and the precious metals were not immune to this," said Peter Spina, chief investment strategist at GoldSeek.com, in e-mailed comments.

He emphasized, however, that he considers the situation to be a "temporary liquidation from these funds which require capital to cover losses."

"Strong investment demand will support these current levels and I do expect to see a reversal in the coming days, weeks," he said. "$700 is still within reach here with growing market instabilities now just another factor for gold's bull market run."

Blanchard's Ryan pointed out that "fundamentally, nothing has changed in the precious-metals markets."

And "if anything, yesterday should underscore the need for some diversification in every investors portfolio and after some shake out, investment dollars will find their way into precious metals investments," he said, in e-mailed comments.

Still hurting

On Tuesday, gold futures closed lower for the first time in three sessions on concerns that China's demand for commodities may weaken. Price losses worsened in electronic trading and the plunge sent many metals-mining shares to their lowest levels in a month.

Wednesday's "global-precious metals market attempted to make sense not only of the unfolding epic in stock markets, but also of its own behavior in the wake of the worldwide stock rout," said Jon Nadler, an investment-products analyst at bullion dealers Kitco.com, in e-mailed commentary.

"The turbulence is proving a bit tough however," Nadler said. "Gold…is nervously pacing the $670-$680 corridor looking for signs of either continued liquidation or bargain hunting demand."

Crude-oil futures fell to a low of $60.30 a barrel Wednesday to catch up on losses posted in the after-hour session Tuesday evening as traders fretted about the potential for weaker energy demand. But prices have recovered to trade near $62 as the market digested news of an increase in U.S. crude supply and declines in distillate and gasoline inventories.

On the currency markets, the dollar remained higher versus major rivals Wednesday after a Commerce Department report showed a largely expected downward revision to U.S. fourth-quarter gross domestic product.

Other metals were mixed Wednesday, with platinum's , April contract adding $3.10 to end at $1,256.40 an ounce. It was up more than 6% for the month.

The June contract for sister metal palladium closed unchanged at $