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Gold Struggles for Direction

Simon Constable

Gold was edging marginally lower Tuesday, but mixed economic data prevented traders from finding sustained direction.

Contracts for February-dated gold contracts were recently slipping 90 cents at $647 an ounce. The bullion exchanged-traded funds streetTracks Gold Shares and iShares Comex Gold Trust(IAU Quote), were also falling, off 0.4% recently.

On the economics front, the Institute for Supply Management says its non-manufacturing index rose to 58.9 in November from 57.1 in the prior period. Forecasts called for a reading of 55.5. A figure of over 50 shows expansion in the non-manufacturing parts of the economy.

"Investors will take this as evidence that there has been no meaningful spillover from the factory sector to the service sector, which will help to sustain the economic expansion," notes Randy Diamond, an analyst at Miller Tabak in New York.

Also out in the morning but showing a different trend, the Commerce Department says October's factory orders fell a more than expected 4.7% compared to a consensus estimate of a 4% decline. The prior period's figure was revised down to show growth of 1.7%, from a 2.1% gain.

Foreign exchange traders reacted by marking down the dollar slightly. It was moving lower against the yen, at 114.825 yen compared to 115.33 yen previously, but unchanged vs. the euro, which was recently trading at $1.3328.

The lack of price movement in bullion Tuesday is in stark contrast to swings seen in the recent past. Spot prices for gold climbed to over $700 in May this year only to tumble to under $570 an ounce by early October. Some observers expect that volatility to resume going forward.

"There will be volatile pullbacks and rises, so be ready for the action," write Julian Phillips and Peter Spina, the editors of the Gold Forecaster - Global Watch newsletter. They urge investors to buy bullion on the dips, but they also warn: "Make sure you have 'trailing' protective stops in place around support levels."

In the official sector, the European Central Bank says it sold 120 million euros of gold and receivables last week, or about 7.7 tons.

Elsewhere in precious metals, spot prices for silver bullion edged down half a cent to $14.045 an ounce, compared to a day earlier according to data from the London Bullion Market Association. The previous day's price marked the highest level since the May peak of $14.94 an ounce.

Shares of Silver Wheaton(SLW Quote) were, however, declining 2.7%, while those of the bullion exchange traded fund iShares Silver Trust(SLV Quote) were off 1.7%.

HSBC Securities more than doubled its price target on palladium producer Stillwater Mining(SWC Quote) to $9 a share from $4.25. The underweight rating was retained, however. The stock was recently off 1.6%.

In base metals, March Comex Copper contracts were up 0.3 cents to $3.25 a pound.

In the ferrous metals sector, Matrix Research upgraded Schnitzer Steel Industries(SCHN Quote) to strong buy, from buy, giving the shares a boost, up 1.5% recently.