Updated from 11:57 a.m. EDT

Gold prices were tumbling again Thursday after a failed morning rally induced more hedge fund selling.

Following the pattern of earlier in the week, a morning stab at the psychologically important $600 level quickly failed and gave way to losses. Contracts for December delivery of bullion shed $10.30 to close at $586 an ounce on the Comex division of the New York Mercantile Exchange, having reached an intraday high of $601.80.

And off exchange, the selloff was continuing with prices for bullion delivered in 24 hours trading at $578.20 recently, according to price quotes from dealer Kitco.

"We're in a 'sell-the-rallies' environment," says Bernard Hunter, director of precious metals at bullion bank ScotiaMocatta in Toronto. "We continue to see fund selling in the wake of the central bank sales," that were reported earlier this week.

Although gold tends to move inversely with changes in the U.S. dollar, that wasn't helping the yellow metal Thursday. In the spot market, the dollar was trading at $1.2738, down from $1.2697 late Wednesday. It was also weak against the yen, buying 117.47 yen compared with 117.58 a day before.

Some observers, however, see that relationship holding up in the longer term.

"It's the story of the twin

federal budget and trade deficits," says Derek Burleton senior economist, at TD Bank in Toronto. "The U.S. will continue to remain dependent on inflows of capital from foreigners," putting downward pressure on the greenback.

TD sees gold prices averaging $670 in 2007, up from a forecast $635 for the end of 2006, according to a report published Wednesday.

Shares of the exchange-traded funds that hold the metal,

streetTRACKS Gold Shares

(GLD) - Get Report

and

iShares Comex Gold Trust

(IAU) - Get Report

, were lower recently, as was the

Market Vectors Gold Miner ETF

(GDX) - Get Report

, which tracks a basket of gold mining companies.

Leading the pack of miners down was

Iamgold

(IAG) - Get Report

, off 12.8% on news that the company would buy

Cambior

(CBJ)

for $1.2 billion in stock. Cambior was gaining 13.5% recently.

Elsewhere in precious metals,

Citigroup

(C) - Get Report

got stung with a $500,000 fine after weak internal controls allowed a rogue trader to build up massive precious-metals positions and falsify documentation.

Citigroup's Global Markets division failed to "reasonably supervise or control its precious-metals trading desk and related business activities," a

New York Stock Exchange

ruling released Wednesday states. Rogue trader Gail Edmonds built up a position of $373 million in December 2002, or almost 75 times her $5 million limit. In addition, the firm failed to accurately mark-to-market certain precious-metals positions and provided false customer statements, the document states. The firm admitted no guilt.

In the base metals, copper dipped as well after an International Monetary Fund forecast showed slowing growth for the U.S. economy, with growth of 2.9% expected in 2007, down from 3.4% in 2006.

Copper prices were recently dipping, with contracts for December delivery of the red metal closing lower by 1 cent at $3.375 pound on the Comex.

The copper market tends to be among the most sensitive to an economic slowdown, notes TD's Burleton. He sees most of the base metals continuing to sell off like copper, but he's less bearish on zinc, which he says should continue to see good demand from China for use in galvanized steel products. Even while lowering its forecast for U.S. growth, the IMF upped its global growth forecast for 2006 and 2007, in no small part because of China's outlook.

If Burleton is correct, that bodes well for Canadian zinc miner

Teck Cominco

(TCK)

, which was recently up 0.8% at $62.98.

Shares of diversified miner

BHP

(BHP) - Get Report

, which majority owns the world's largest copper mine in Chile, were recently down 0.7%.