Daily Gold Update

Source: Reuters

New York— Gold retreated from six-year highs on Tuesday, thwarted by a stronger dollar as the White House released a $673 billion tax cut and economic stimulus plan, but the safe-haven metal retained a hefty war premium.

U.S. President George W. Bush unveiled proposals for tax cuts, including elimination of the controversial corporate dividend tax, and small business capital spending incentives in a speech Tuesday afternoon.

The details seeped out ahead of time and the dollar firmed overnight after nearing a three-year low against the euro on Monday.

February gold <0#GC:> settled down $4.40 at $347.70 an ounce, trading $352-$345. On Monday the contract topped at $357, which was last traded in February 1997.

"You've seen a little bit of a positive outlook in the dollar and stock market so you're starting to see a little bit of a retracement and profit-taking coming in here, which is OK. You can't go straight up," said another COMEX floor source.

Monday's 171-point surge in the Dow Jones industrials removed an incentive for investors to buy gold. The Dow was up 23 points in afternoon trade Tuesday.

The COMEX is extremely overbought, with funds net long 59,505 contracts as of a week ago according to the CFTC Commitments of Traders report released late Monday.

It's been almost seven years since the market was committed this bullishly. But now the issue is where to find new buyers.

"You didn't see any follow through yesterday in New York and the Commitments of Traders report came out showing significant longs in the market and that being the case you saw a little bit of profit taking today," said a bullion trader. "Oil prices being off today also contributed."

The shakeout leaves plenty of profits on the table for funds who have been accumulating gold futures expecting a war.

As the United States speeded up deployment of troops to the Gulf for a potential war to disarm Iraq and topple Saddam Hussein, President George W. Bush on Monday called a defiant statement from the Iraqi leader "discouraging news" for a peaceful resolution.

Bush, speaking amid a major American military buildup and revelations of U.S. plans for administering a unified postwar Iraq, delivered a fresh demand for Baghdad to come clean over any weapons of mass destruction.

The British government, which supports Washington's aims, is also poised to mobilize troops and reservists for a possible war against Iraq.

Adding to geopolitical tensions, Communist North Korea said economic sanctions over its nuclear program would mean war and urged the U.S. to sit down and talk.

Bush, who has branded the Communist state part of an "axis of evil" along with Iraq and Iran, said on Monday he remained open to dialogue but White House officials said the North must first end efforts to develop atomic weapons.

"The market continues to remain very nervous…I think we see further gains over the next few weeks with a possibility to test $420," said James Moore, analyst at TheBullionDesk.com.

March silver <0#SI:> fell 9.5 cents to $4.815 an ounce, trading in a $4.925-$4.785 range. Spot silver was at $4.79/81, off from $4.88/90 late Monday. The fix was $4.84.

Silver hit a 5-1/2 month high Monday at $4.945. Longs stopped themselves out on the break below $4.87 on Tuesday.

NYMEX April platinum <0#PL:> fell $3.40 to $603.40 an ounce. Spot was at $606.10/611.10.

NYMEX March palladium <0#PA:> was off $2.75 at $242.20 an ounce. Spot palladium last traded at $237.50/245.50.