Daily Gold Update

Source: Reuters

New York— Gold prices closed at two-month lows on Monday and silver hit its weakest level in three months, as precious metals lost some appeal due to a bounce in the dollar and lower crude oil prices, traders said.

Few buyers at the start of the year, after gold turned in a strong performance in 2004, disappointed traders who were hoping for more safe-haven buying amid violence in Iraq, fears of inflation and the dollar's poor outlook.

"I think a lot of people were expecting new money to come into the market, and when it didn't, gold and silver started breaking down through technical levels and we saw continued liquidation," a trader at a large international bank said.

On the COMEX division of the New York Mercantile Exchange, February delivery gold fell $8.70, or 2 percent, to $429.70 an ounce, after dealing between $438.90 and $427.80, which was its lowest level since Nov. 5.

Gold futures rose nearly 6 percent in 2004, following gains of about 20 percent a year earlier.

Bullion touched $428.60/9.30 an ounce in late trade, compared with Friday's London closing quote at $438.70/9.40.

The dollar rebounded after it slid to record lows against the euro last week, but analysts were uncertain if the rally would hold as the focus turned to the December U.S. jobs report due Friday.

The euro was down at $1.3487 in midafternoon, against record high last week at $1.3667.

Crude oil was down about 3 percent as mostly mild Northern Hemisphere weather tempered heating oil demand.

"Lower euro and oil are hitting gold and there are technicals hitting this thing, too," said Tom Boustead, a metals analyst at Refco. "Also we knocked under a recent low at $433.40, and that got some additional motion going in it."

Gold usually goes in the opposite direction from the dollar as investors use it as an alternative to the currency. Lower oil prices also can reduce interest in gold as a hedge against inflation.

Physical trading was quiet, dealers said, with jewelry makers and investors showing negligible interest in the yellow metal currently, despite falling prices.

Many gold players were sidelined at the start of 2005, however, as commodity markets in London were shut on Monday and Tokyo gold futures were closed until Tuesday.

Currency traders tend to think the dollar's downtrend is intact and the euro's bull run should have further to go this year, which in theory should bolster gold prices.

COMEX gold hit a 16-year high at $458.70 in December. Analysts have targeted the $465-$470 level as an early 2005 high, with $500 seen possible after that.

Support in futures lurks at $427.50, followed by the 100-day moving average at $426. Brokers pegged initial resistance at $435.

Holdings of gold in the U.S. exchange-traded fund streetTRACKS, which is backed by bullion, stood at 94.86 tonnes on Dec. 31, up from 91.75 tonnes early last week.

March silver settled 33 cents lower at $6.507 an ounce, after trading from $6.84 to $6.49, its lowest since Sept. 27. Spot silver tumbled to $6.47/50, compared with its last closing quote at $6.81/6.83.

NYMEX April platinum fell $6.20 to close at $853.50 an ounce. Spot platinum last traded at $853/857.

March palladium lost $6.25 to $179 an ounce. Spot held at $179.50/185.50.