Daily Gold Update

Source: Reuters

New York— COMEX gold and silver skidded to one-month lows on Wednesday and closed down as fears of inflation lifted the dollar and fanned speculation that U.S. interest rates must soon rise to cool the economy.

The largely technical washout started after the greenback rose to a 20-week high against the euro on a 0.5 percent rise in the March U.S. Consumer Price Index, which gave non-dollar investors in precious metals a more advantageous exit level in their own currencies.

Financial markets were expecting a 0.3 percent rise, the same as last month. Core CPI, without food and energy prices, went up 0.4 percent, twice the 0.2 percent rise forecast.

June gold settled down $7.20 at $400.50 an ounce after trading from $408.70 to $397.00 which was its lowest price since March 12. Estimated volume was a heavy 98,000 contracts.

Spot gold fell to $399.50/400.25 from $406.10/7.10 late Tuesday. London's afternoon fix was $397.75.

David Rinehimer, head of commodities research at Citigroup Global Markets, observed a "shift in focus away from the geopolitical events and more focus on U.S. interest rates, based on the economic releases that were seeing. With the dollar advancing it has triggered speculative long liquidation."

Markets are betting that the Federal Reserve will tighten by summer. Once U.S. deposit rates move up from 45-year lows, it will become costlier to carry positions in gold, which has a zero yield.

"I would still have to think the situation in Iraq and security concerns are going to help limit the downside in gold," Rinehimer added.

June gold is down 7.5 percent from a 15-year high hit on April 1. Executing on computer sell signals, commodity funds crowded the exits this week to lock in vanishing profit margins from the metal's bull run to $433.00 an ounce.

The noncommercial long position grew to its largest size ever last week. Open interest also hit a record. Tuesday's $13.20 shakeout slashed open interest by 10,279 contracts, a big washout on frantic volume of 118,194 contracts.

"They are mostly knee-jerk reactions, along with the domino effect in gold and silver. They clearly got too many longs in there at too frothy a price," said a metals broker at a futures commission house.

May silver closed down 44.5 cents at $7.005 an ounce after trading $7.46 to $6.83 which was its cheapest price since March 5 when it started to advance toward the 16-year high achieved on April 2 of $8.50.

Spot silver fetched $6.99/7.01, down from Tuesday's close at $7.42/45. Wednesday's silver fix was $7.155.

NYMEX July platinum fell $1.70 to $923.90 an ounce. Spot was last quoted at $925.00/930.00.

June palladium lost $9.50 to end at $317.30 an ounce. Spot palladium fetched $310.00/315.00.