Early Gold Rally Fades

Updated from 11:37 a.m. EST

A gloomy retail sales report undermined the greenback Tuesday and gave an early boost to gold futures, but the rally fizzled out amid severe overhead technical resistance.

Contracts for April delivery of bullion closed down 90 cents at $649.40 an ounce on the Comex division of the New York Mercantile Exchange. The exchange-traded funds that hold the metal were lower also, with streetTracks Gold Shares(GLD Quote) and iShares Comex Gold Trust (IAU Quote) down 0.1%.

Retail sales grew less-than-expected in January, according to a new report from the Commerce Department. Worse still, when the automobile component is excluded, the data show a drop in sales during the period. While some commentators tried to brush off the figures as a weather-related aberration, not everyone is convinced.

"We are not sure about the theory that cold temperatures in February kept consumers home," says Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York. "After all, February is a month known for its cold weather."

Laidi says the new data will weigh heavily on first-quarter GDP growth and point to a high probability of an interest rate cut by the Federal Reserve in the first half of the year.

Such a move would be bearish for the U.S. currency and bullish for gold, which tends to appreciate as the greenback declines. One dollar was recently buying 116.32 yen, down from 117.67 yen late Monday. The euro was changing hands for $1.3192, barely changed from $1.3191 previously.

Back in gold, on the technical side of things, at least one chart watcher sees the slip in bullion prices as part of a bigger downward retracement.

"I think from here we are headed lower to $632," at which point some support should kick in, says Joe Palmisano, a technical analyst at IDEAglobal, in New York. "The move is a continuation of an early signal we got on Friday."