Gold Futures Head Lower

Updated from 11:30 a.m. EDT

Gold fell Wednesday after a big selloff in equities during the previous session sparked a dash for cash.

Contracts for April delivery of gold closed down $6.90 at $642.50 an ounce on the Comex division of the New York Mercantile Exchange.

The bullion exchange-traded funds, which hold inventories of the metal, were mixed in recent action, with streetTracks Gold Shares(GLD Quote) up 0.1% and iShares Comex Gold Trust (IAU Quote) hovering around the unchanged mark.

At about the same time Comex floor trading ended Tuesday, a retreat by the major U.S. averages accelerated on concerns that the performance of dicey housing loans may spill over to the broader economy. Stocks dropped roughly 2% in New York.

The pullback sent traders scrambling to find cash to cover margin calls.

"We suspect longs have liquidated gold positions to pay for losses in other markets," says Robin Bhar, a metals strategist at UBS in London. "It's another period of risk-aversion that we saw at the beginning of March."

Traders should look for a further dip to around $625, at which point jewelry fabricators will likely provide meaningful price support, says Bhar.

In other news, the Commerce Department reported better-than-expected trade data in the fourth quarter of 2006. The statistics show that imports of goods and services outstripped exports at a softer rate than the consensus forecast.