Daily Gold Update

Source: Reuters

New York— COMEX gold retreated from a six-week high on Wednesday on speculation a U.S. attack on Iraq would be averted after Baghdad said United Nations inspectors could return under a tough new disarmament plan.

Funds got caught with unwanted safe-haven positions booked Tuesday, when Iraq's parliament rejected the U.N. resolution and passed the decision to President Saddam Hussein, who holds absolute power in Iraq.

"Today's activity consisted of a contraction of the war premium on news that Iraq was going to accept," said a metals broker referring to gold.

COMEX December gold ended down $5.80 at $318.90 an ounce. It fell from $325.40, its highest since Oct 3. to a 13-day low at $317.

Eyebrows were raised when the COMEX reported at midday that open interest jumped on Tuesday as gold rose $3 by an unusually large 10,504 contracts, as speculators added long positions.

"It wasn't just sell stops. People who were long were just calling up yelling 'get me out,'" said the broker. "Clearly it was getting a little overbought technically at $325 and when the news from Iraq came out it was just enough to shake out all sorts of people who had jumped on board."

Spot gold was last quoted at $318.40/8.90, down from Tuesday's close at $324.00/4.50. London dealers fixed Wednesday's afternoon spot reference price at $324 an ounce.

Iraqi Foreign Minister Naji Sabri informed the United Nations that his country agreed unconditionally to U.N. resolution 1441, which gives Baghdad one last chance to disarm, cooperate with U.N. weapons inspectors, or face "serious consequences."

U.S. President George W. Bush has warned that if Iraq does not come completely clean on its weapons of mass destruction, it will mean war, the specter of which could lift oil prices back up and send investors rushing to hard assets like gold as risk insurance.

"It doesn't really take away from my overall still positive bias in this timeframe," said David Meger, metals analyst at Alaron Trading in Chicago. "It's not a surprise to see longs washed out on move such as that, especially since equities bounced off earlier lows."

Wall Street provide mixed signals on Wednesday, but a rally in the dollar was bearish for gold, by reducing the buying power of overseas bullion investors and fabricators.

Cautiously hopeful comments on the U.S. economy by Federal Reserve Chairman Alan Greenspan, who testified before the Joint Economic Committee of Congress, buoyed the dollar but were overshadowed by the Iraq announcement.

December silver <0#SI:> settled down 4.0 cents at $4.56 an ounce after trading $4.63 to $4.525. Spot silver fell to $4.55/57 from $4.59/61 late Tuesday. It was fixed at $4.5725 an ounce.

NYMEX January platinum <0#PL:> rose $6.60 to $585.30 an ounce. Spot platinum was quoted $587.30/592.30.

December palladium <0#PA:> closed unchanged at $286 an ounce, having posted a new contract low at $283 on worries about collapsing autocatalyst demand and destocking by car makers. Spot palladium was last indicated at $282/284.

AGE Note: Gold fell about $5 today as news of acceptance by Iraq of U.N. inspection teams was announced. New York funds who bought heavily over the last seveeral trading sessions all bailed out simultaneously, pushing the market lower. Gold held value pretty well in the face of this heavy, panicked selling.