Gold Loses Early Gain

The dollar gets hit in the wake of weak retail sales and PPI reports, but the metal can't sustain a rally.
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Updated from 11:29 a.m. EST

Gold prices sank slightly Tuesday despite weakness in the dollar, which was kicked down by soft economic data.

December delivery contracts for gold closed off 50 cents at $625.30 an ounce on the Comex division of the New York Mercantile Exchange, and the exchange-traded funds that hold the metal were dipping also, with

streetTracks Gold Shares

(GLD) - Get Report

and

iShares Comex Gold Trust

(IAU) - Get Report

both moving 0.5% lower recently.

Despite an intraday rally to as high as $630.40 an ounce, gold quickly ran into technical resistance, with "profit-taking from positions taken on a week ago, pushing prices back down," says Jon Nadler, an analyst at the Montreal bullion dealer Kitco.

Meanwhile, the greenback, which tends to move inversely with bullion prices, was falling, recently buying 117.518 yen, down from 118.19 late Monday. It was also sliding against the euro, which was trading at $1.2822 vs. $1.2803.

The currency moves came after the Commerce Department reported slowing retail sales for October, down 0.2% compared with forecasts of a 0.4% decline. However, investors focused on the underlying figure: Excluding autos, sales dropped 0.4% compared with expectations of a 0.3% fall.

Also, the Department of Labor said producer prices slumped 1.6% in October vs. consensus forecasts of a 0.5% dip. Excluding food and energy costs, core PPI fell 0.9% compared with an expected gain of 0.1%

"The dollar is getting smoked vs. the yen," writes Randy Diamond, an analyst at New York-based Millar Tabak. "The bond market reaction suggests they have officially removed the

Fed

from rate hikes and now are expecting rate cuts as soon as March."

Diamond says the chance of a cut is now 38% compared with 22% on Monday; this then fed into dollar weakness, as foreign-exchange investors often make currency allocation decisions on the basis of likely interest rate returns.

Among the miners, shares of South Africa's

Harmony Gold Mining

(HMY) - Get Report

and those of Canada's

Agnico-Eagle Mines

(AEM) - Get Report

were both falling 2% and 1.3% respectively.

Elsewhere, Reno-based

Meridian Gold

(MDG)

was gaining, up 0.4% recently, following favorable drill-hole results from a project in Mexico, reported after the close Monday.

In the official sector, the European Central Bank says it sold 180 million euros of gold and receivables last week, or almost 12 tons.

In base metals, Comex December copper contracts closed up 1.4 cents at $3.089 a pound.

A "potentially encouraging factor is that

Monday's formations on the charts look like a mix-match of hammer candlesticks, which after a selloff can be a bullish sign," writes William Adams, an analyst at U.K.-based

BaseMetals.com

. "This pattern needs to be treated carefully, as the very existence of a hammer candlestick also means that selling has started to increase."

(A hammer candlestick is a price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price, according to Investopedia.com.)

Adams says that prices for the red metal will need to climb and hold over the $7,000-a-ton ($3.175 a pound) level before it starts looking less vulnerable. Prices for the benchmark three-month contract on the London Metal Exchange have fallen from $8,100 a ton in early September as inventories have steadily grown.

Shares of copper miner

Phelps Dodge

(PD) - Get Report

were falling 1.9%, while those of

Southern Copper

(PCU)

were losing 2.8% recently.