Daily Gold Update

Source: Reuters

New York— Gold futures traded flat Tuesday, after soaring to as high as $599 an ounce earlier in the session, as investors remained cautious ahead of the Federal Open Market Committee decision on interest rates.

Gold for August delivery was last up 10 cents at $587.8 an ounce on the New York Mercantile Exchange.

"The mining stocks led gold downward as the market grew a bit nervous in anticipation of the Fed meeting and investors prepared for the long trading break in the U.S.," said Brien Lundin, editor of Gold Newsletter.

The Federal Reserve is widely expected to increase interest rates on Thursday.

"The [Federal Open Market Committee] meeting this week is keeping the metals traders on the edge as they square positions ahead of the Thursday announcement," said Dale Doelling, chief market technician at Trends In Commodities.

In the short term, gold is "vulnerable to bouts of long liquidation" with the Fed, the end of the month, quarter and first half on Friday, and the U.S. Independence Day holiday early next week, said James Moore of TheBullionDesk.com.

In the long term, Moore said, gold remains an attractive investment given inflation worries, high oil prices, the soaring U.S. deficit, and the continued uncertainty surrounding the nuclear ambitions of Iran and North Korea.

Elsewhere in the commodities sector, crude-oil futures hit a two-week peak Tuesday after the temporary closure of a channel in Louisiana hurt production at local refineries. Crude for August delivery was last trading up 63 cents at $72.43 a barrel, pulling other petroleum products higher with it.

On the currency markets, the dollar traded flat against major rivals, after posting losses yesterday and giving some strength to gold.

"If the dollar turns lower, it may just provide the spark that will allow the precious metals to gain some footing and begin to move higher," Doelling said.

Other metals prices were mixed. Silver added 3.0 cents at $10.270 an ounce. Platinum rose $5.70 to $1,187.0 an ounce. Palladium edged down $5.55 to $315.0 an ounce and copper declined 13.90 cents to $3.185 a pound.

Chinese silver production will increase 28% over the next five years to 8,000 tons a year "as higher prices encourage new investment and increasing imports of lead and copper concentrates produce by-product metal," said John Clemmow of Investec Securities in a note to investors.

Meanwhile, Chinese imports of copper in all forms for the first five months of the year declined 15% compared with 2005, said William Adams, metals analyst at BaseMetals.com.

On the supply side, gold inventories were unchanged at 8.03 million troy ounces, as of late Monday, according to New York Mercantile Exchange data. Silver supplies fell by 210,383 troy ounces to 102.4 million.

Copper inventories were unchanged at 7,396 short tons.

After rising early on Tuesday, the indexes tracking the metals sector posted losses. The Philadelphia Gold and Silver Index was last down 1.2% at 133.35, the Amex Gold Bugs Index dropped 1.6% at 310.54, and the CBOE Gold Index edged down 1.4% at 135.34.

Metals exchange-traded funds also declined. The StreetTracks Gold Trust ETF was down 0.2% at $58.18, the iShares Silver Trust ETF dropped 0.7% at $103.90, and the Market Vectors-Gold Miners ETF was down 1.5% at $36.08.

ETFs backed by gold will attract the major investment funds in three to five years' time once they amass 3,000 tons of gold reserves, said Chris Thompson, former chairman of the World Gold Council, at the annual meeting of the London Bullion Market Association in Switzerland.

"The ETFs have become the investment du jour in the gold market in the course of the past two years," said Dennis Gartman in The Gartman Letter.

Among metals-related equities, Kennecott Canada Exploration Inc. agreed to buy 8.7 million shares of Northern Dynasty Minerals Ltd. at $10 each, or C$87.5 million. The stake equals 9.9% of Northern Dynasty, a Vancouver mining company that is developing the Pebble project in southwestern Alaska. The mine includes copper, gold and molybdenum, Northern Dynasty said. Kennecott is an affiliate of Rio Tinto plc, the London mining group.

Northern Dynasty shares were last up 0.2% at $8.89. Rio Tinto fell 0.4% to $202.78.