Daily Gold Update

Source: Reuters

New York— Gold futures in New York tumbled on Monday to close at a 10-day low, as a stronger dollar, falling oil price and gains in the stock market touched off a round of heavy fund selling, dealers and analysts said.

Silver slumped to a 3-1/2-week low on the speculative liquidation that spilled over from gold and copper, while platinum and palladium settled mixed.

In gold, traders also were mulling over what Barrick Gold's surprise takeover bid for Canadian competitor Placer Dome could mean for bullion prices.

Though there was more immediate concern about the risk of a shakeout in the overbought gold market, players focused on the longer-term implications of the blockbuster $9.2 billion deal, which would create a gold mining giant rivaling Denver-Based Newmont as the world's largest producer.

Benchmark December gold on the New York Mercantile Exchange's COMEX division plummeted $7.90, or 1.7 percent, to close at $466.90 an ounce — its cheapest settlement since Oct. 20. The day's range ran from $475.60 to $466.50.

"There really wasn't much working in gold's favor," said David Rinehimer, head of commodities research at Citigroup Global Markets in New York.

"The economic data that came out today was better than expected, which strengthens the outlook that the dollar will benefit from attractive interest rate differentials.

"And, the market is still dealing with a rather large noncommercial net long position," Rinehimer added. "I just think that with the stronger dollar and weaker energies, the market had some vulnerability to some liquidation pressure."

Open interest and the net long position held by speculators are near records, reached when gold prices were galloping to 18-year highs earlier this month.

Friday's Commitments of Traders report from the Commodity Futures Trading Commission showed the net noncommercial long gold position at the COMEX fell to 153,352 contracts from 170,424 lots in the week to last Tuesday.

Gold also lost some of its allure for investors as an inflation hedge and as an alternative currency on Monday, as crude oil fell to below $60 a barrel and as the dollar rose 0.6 percent against the euro.

On the economic front, U.S. consumer spending rose moderately last month, while income jumped the biggest amount in 10 months.

Separately, manufacturing activity in the Midwest was strong, which economists said underscored forecasts for solid growth despite the recent hurricanes.

Barrick said a deal to combine with Placer Dome would produce 8.3 million to 8.4 million ounces of gold a year, and would sell several mines to fellow miner Goldcorp. Newmont expects to mine 8.6 million ounces this year.

The market was analyzing what further consolidation would mean for supply in an industry raking the planet to find needed reserves, and whether combining two companies who have long used forward contracts and options to lock in prices of unmined gold would mean more or less hedging in the market.

"The market is just too long. The dollar is a bit stronger so your forces have taken over," said Bruce Dunn, a trader at at bullion dealing firm Auramet.

"I think people thought it would be slightly bullish and now some weak longs are starting to liquidate," he said, calling the Barrick deal "big stuff."

Dunn said commodity funds bought gold as a long-term play, expecting prices to rise above $500, and they would not get spooked by a $20 pullback.

"You will have your consolidation and correction phases, but overall the gold market still looks pretty healthy," he said. "Any time the market dips it seems like nothing more than a buying opportunity."

Final estimated COMEX gold volume was 62,000 contracts, compared with Friday's count of 44,450 lots.

Open interest slipped 433 lots to 346,308 lots on Oct. 28.

Spot gold was at $464.80/465.60 an ounce, way below Friday's New York close at $473.10/473.80. Monday's afternoon fix by London bullion dealers was at $4700.75.

December silver tumbled 24 cents to close at $7.58 an ounce, trading from $7.845-7.575, which marked its cheapest close since Oct. 5.

Spot silver fetched $7.52/55, from $7.75/78 previously. It fixed at $7.765.

NYMEX January platinum rose $1.40 to $943.20 an ounce. Spot platinum was at $936/940. December palladium lost $3.15 to finish at $227.15 an ounce. Spot palladium last was at $222/226.