Gold prices were sinking Thursday as the diplomatic spat between Iran and the U.K. failed to escalate substantially overnight, spurring traders to look elsewhere for profits.

June-dated contracts were sliding $5.20 to $667.70 an ounce in New York. The bullion exchange-traded funds,

streetTracks Gold Shares

(GLD) - Get Report

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and

iShares Comex Gold Trust

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, were off 0.8% and 0.9%, respectively.

Iranian officials indicated that they won't release the sole female hostage among 15 British military personnel taken prisoner Friday for allegedly trespassing inside Iran's territorial waters. The move by Tehran reneges on an earlier promise to free the woman and comes as Britain announced it would begin freezing relations with the country, as well as taking the matter to the United Nations.

"The whole thing with gold is that it captures everyone's uncertainties," explains Bernard Hunter, director of precious metals at Scotia Mocatta in Toronto. "But now there is a degree of certainty."

"While the matter stays in a diplomatic phase you are more likely to see it downplayed," Hunter says, asserting that the intensity of recent price action in bullion typically can't be sustained for long periods.

In the precious metals patch, the Amex Gold Bugs Index was ahead 0.1%, while component stock

Eldorado Gold

(EGO) - Get Report

was off 1.2%.

Turning to ferrous metals,

U.S. Steel

(X) - Get Report

said it would buy Dallas-based tube-maker

Lone Star Technologies

( LSS) for $2.1 billion in cash.

The news sent shares of Lone Star up about 37%, while those of U.S. Steel were rising 3%, as investors warmed to the news.

As for base metals, copper contracts were up a penny at $3.08 a pound on the Comex following quiet trading overnight in London.

J.P. Morgan upped its rating on copper producer

Freeport-McMoRan Copper & Gold

(FCX) - Get Report

to overweight from neutral. The shares were rising 2.3% in recent action.

Elsewhere, Friedman Billings Ramsey boosted its stock price target on Canadian uranium miner

Cameco

(CCJ) - Get Report

to $55 a share from $42 and reiterated an outperform rating.

FBR analyst Fadi Shadid points to rapidly rising uranium prices fueled by demand growth outstripping supply by 10% per year through 2015, a factor that should boost earnings for the company.

Shares of Cameco were up 1.4%.