Gold Futures Head Lower

Contracts for April delivery are down $6.90 at $642.50 an ounce.
Author:
Publish date:

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) - Get Report

up 0.1% and

iShares Comex Gold Trust

(IAU) - Get Report

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.

"The reduction was mostly attributable to lower oil prices," says Peter Morici, an economist at the University of Maryland's business school. "The deficit will be up again soon because oil prices have reversed. It likely won't have much lasting effect on the dollar."

Reaction to the data among foreign-exchange traders was muted, with one dollar buying 116.81 yen, up slightly from 116.36 yen the prior day. Euros were changing hands for $1.3225, up from $1.3192 previously. Over time, the value of gold and that of the dollar tend to move inversely with each other.

Back in gold, the precious metals team at Merrill Lynch in Toronto upped its gold price forecast by $25 to $675 an ounce for 2008 based on a revision of supply and demand fundamentals. But longer term, a decline to around $550 an ounce is expected.

Merrill also raised its rating on shares of

Kinross Gold

(KGC) - Get Report

to buy from neutral, boosting the stock 0.2% in recent action.

Elsewhere, shares of

Agnico-Eagle Mines

(AEM) - Get Report

were ahead by 0.2%, while those of

Barrick Gold

(ABX)

were up 0.6%.

As for base metals, copper contracts closed virtually unchanged at $2.83 a pound on the Comex.