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Gold Futures Give Up Gains

Contracts for April delivery slip $1.40 to close at $657.30 an ounce.

Updated from 12:02 p.m. EST

Gold futures slipped Wednesday as oil prices pulled back, reversing early-session gains.

Contracts for April delivery of gold lost $1.40 to close at $657.30 an ounce on the Comex division of the Nymex. Earlier in the day prices came within a hair of $662 before turning lower.

The exchange-traded funds that hold gold also pulled back. The

streetTracks Gold Shares

(GLD) - Get SPDR Gold Trust Report

and the

iShares Comex Gold Trust

(IAU) - Get iShares Gold Trust Report

were both down 0.2%.

Crude oil futures were recently off $1.17 at $57.71 a barrel, prompting commodity dealers to trim bullion positions. Gold is often purchased as a hedge against a rising price level, and oil is considered a major contributor to cost-led inflation.

Earlier in the day, gold got a temporary boost as metals traders factored a new report on productivity and labor costs into their overall projections about where the economy is headed.

The Labor Department says worker productivity grew 3% in the fourth quarter, according to its preliminary estimates, beating the consensus forecast of a 2% gain. But muddying the water somewhat was a downward revision of the third quarter to a 0.1% drop from an increase of 0.2% reported previously.

"The downward revision in the prior period takes some of the sting out of the upside surprise," says T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York. "But it's got to be heartening to the

Federal Reserve

that all that tightening they did is having some bite," he said, referring to the string of 17 interest rate hikes that ended in June 2006.

Overall, he says the data are slightly bearish for the U.S. dollar and are reflective of a "Goldilocks economy rather than a roaring one." Higher worker productivity means the economy can grow at a faster pace without causing inflation, leaving the Fed able to postpone future interest rate increases.

Foreign exchange traders gave the greenback a mixed response. One dollar was changing hands for 120.675 yen, up from 120.12 yen late Tuesday. One euro was buying $1.3006, up from $1.298 previously. The price of gold tends to rise when the dollar falls.

Ross Norman, an analyst at

TheBullionDesk.com

in London, notes the gold market seems to be reacting to bullish news and not the bearish side of the equation.

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"There are players on the sidelines waiting to buy whenever the market looks weak," says Norman. He adds that the six-nation talks aimed at persuading North Korea to suspend its atomic weapons program, and which are set to start Thursday, probably won't have much of an impact.

"

Gold is like an addict that needs to get bigger and bigger hits

of worrisome geopolitical news in order to sustain the highs," says Norman. Historically, bullion has been viewed as a safe haven investment in times of uncertainty in the diplomatic realm.

In the precious metals patch, the

Market Vectors Gold Miners ETF

(GDX) - Get VanEck Vectors Gold Miners ETF Report

, which tracks a basket of gold and silver stocks, was falling 1.5%.

Barrick Gold

(ABX)

was lower by about 1%, while

Golden Star Resources

(GSS) - Get Golden Star Resources Ltd. Report

was losing 0.6%.

Turning to base metals, March-dated copper contracts lost ground on the Comex, off 4 cents at $2.46 a pound.

Shares of Australian mining behemoth

BHP

(BHP) - Get BHP Group Ltd Sponsored ADR Report

were moving up 5.5% at about $44 after the company said it would buy back $10 billion worth of stock.

"

The stock price move is viewed as signaling the start of a major uptrend," for BHP, according to Clive Maund, a Chile-based technical analyst. "This very bullish action is most auspicious for resources stocks generally." Maund says BHP could rally to $60 a share.