Daily Gold Update

Source: Marketwatch

San Francisco— Gold futures turned higher Monday afternoon, overcoming strength in the U.S. dollar in an attempt to regain lost ground, after a more than $10-an-ounce loss last week.

"After the declines last week, we expected some bounces," said Jon Nadler, an analyst at Kitco Bullion Dealers. The climb is "probably good for $665 or so at the least."

"But the bearish tone is not over," he warned in e-mailed comments.

Gold for June delivery was last up $1.70 at $663.70 an ounce on the New York Mercantile Exchange, bouncing from a low of $657.50.

In the previous session, gold futures posted modest gains, closing up $4.80 at $662 an ounce, though the contract lost $10.30 for the week.

"Stronger dollar, weaker base metals, rise in Chinese yuan rates, take your pick — they are just the undertone of the current woes in bullion," said Nadler, in earlier commentary.

On the currency markets, the dollar rose to a five-week high against the euro and a three-month peak vs. the yen Monday, continuing to rebound after recent economic figures dampened expectations the Federal Reserve would lower interest rates soon.

Meanwhile, the World Gold Council reported that investment demand was down in the first quarter, according to Nadler. "Gold cannot ignore a 26% drop in investment demand at a time when physical demand was already not so hot," he said.

So, "yes, it does look like $650/$630/$605 are the next bowling pins down the lane," he said. "But we are sure to hear that all is well and the bull market has resumed — as soon as we get the next $20 upside pop."

For now, it's important to keep in mind that "traders are one thing — investors are another," and people will "keep accumulating gold for that future rainy day, year-in, year-out," said Nadler.

Other metals prices traded higher, with the exception of platinum, which saw its July contract give back $6.40 to $1,319.80 an ounce, extending last week's loss of more than $15.

June palladium tacked on $8.55 to $373.80 an ounce, July silver added 11.7 cents to $13.12 an ounce and July copper traded at $3.3795 a pound, up 1.7%, or 5.6 cents.

Palladium is moving higher "underscoring what we have seen from some clients taking positions in the physical metal," said Neal Ryan, director of economic research at Blanchard. "This is allowing some investors to benefit from increasing ETF demand in Europe and the potential, however remote, that ETFs may possibly spring up in the United States."

At the same time, Ryan pointed out that while platinum and palladium continue to grab the headlines in the precious-metals markets and sentiment around the markets become increasingly bearish toward the outlook for gold and silver, "we believe it is the true contrarian that will benefit from the situation at hand."

"The fundamental picture for the market continues to improve and it might be good to have the gold and silver markets take some time away from the constant market analysis while some technical damage is repaired," Ryan said in e-mailed commentary.

On the supply side, gold warehouse inventories rose by 2 troy ounces to stand at 7.71 million troy ounces as of late Friday, according to Nymex data. Silver supplies were unchanged at 132 million troy ounces, while copper supplies were unchanged at 31,379 short tons.

Indexes tracking the metals sector headed higher Monday, along with most metals futures.

The Amex Gold Bugs Index added 1.6% to stand at 333.75 points, the CBOE Gold Index climbed 1.5% to trade at 1474.01 points and the Philadelphia Gold and Silver Index rose 1.7% to 139.15 points.

As for sector ETFs, the StreetTracks Gold Trust ETF rose 0.2% to $65.64, the iShares Silver Trust ETF tacked on 0.5% to trade at $129.63 and the Market Vectors-Gold Miners ETF rose 1.8% to $39.71.