Gold Pressured from All Sides

Global rate hikes, dollar strength and lower geopolitical tension conspire against commodities.
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Updated from 12:03 p.m. EDT

Gold and metals continued to tumble Thursday, as more global central banks hiked rates, crude oil prices slid and the dollar rose sharply on news of the death of Iraq's al-Qaida leader Abu Musab al-Zarqawi.

Gold for August delivery dropped $18.7, or 3%, to close at $613.8 an ounce.

Among other metals, silver for July delivery plunged 81 cents, or 6.8%, to $11.07 an ounce, and copper for July delivery fell 22 cents, or 6.1%, to $3.35 a pound.

News that al-Zarqawi was killed by a U.S. air raid in Iraq on Wednesday boosted the dollar and removed some safe-haven bids for gold.

Another key pressure on gold's safe-haven status in the past few days has been easing tensions over Iran's nuclear ambitions.

Again on Thursday, Iranian President Mahmoud Ahmadinejad said Tehran was ready to discuss "common concerns" about its nuclear program, according to the

BBC

. The comments come several days after Tehran said a package of incentives aimed at curbing Iran's nuclear research contained positive steps.

"Over the past 12 months, a big part of the move in gold has been safe-haven related," says James Moore, metals analyst with the Bullion Desk in London. "And most of that has been over Iran."

Gold, which also acts as a hedge against inflation pressures, also fell along with crude oil amid diminishing concerns that oil supply from Iran, the world's fourth-largest producer of crude, might be disrupted. In recent action, crude oil for July delivery was down 72 cents to $70.10 a barrel, after sliding below $70 earlier.

In addition, dollar strength continued to pressure gold and other metals. A stronger greenback lowers the value of dollar-denominated commodities, such as gold, as it takes less of the currency to buy the same amount of gold.

"The

Zarqawi headline accelerated the dollar rally vs. the European currencies, especially the Swiss franc, which usually strengthens in times of geopolitical uncertainty," writes Ashraf Laidi, currency strategist at MG Financial.

In recent action, the Dollar Index, which tracks the value of the greenback against a basket of key currencies, was up 1%.

Gold, in particular, had benefited from expectations that the dollar will resume a multiyear decline once the

Federal Reserve

stops its 24-month-old campaign to raise interest rates.

But these expectations were again frustrated by hawkish comments from Fed Chairman Ben Bernanke on Monday and by other Fed officials on Tuesday and Wednesday. During Thursday's confirmation hearings before the Senate Banking Committee for the position of Fed vice chairman, Fed Governor Donald Kohn joined the fray, saying that while the economy is slowing down, he has found recent inflation data "troubling."

Besides dollar strength, a key concern that has hit commodities since mid-May is the gradual removal of financial liquidity from the global market place. This concern took another bite from commodities prices on Thursday.

As widely expected, the European Central Bank lifted its key rate to 2.75% while, unexpectedly, South Korea also hiked, citing inflation concerns. Central banks in Turkey, India, South Africa and Denmark have all hiked interest rates over the past 24 hours, according to

Bloomberg

.

Commodities, especially metals, have been hit in recent weeks by concerns that central banks are raising interest rates to curb growth and inflation pressures, notably from soaring commodities prices.

Gold has now lost 17% since hitting a 26-year high of $730 in early May, while silver has lost 21% and copper is down 16% from their respective May highs.

Some analysts suggest that metals with a more industrial use such as copper and, to a lesser extent, silver may suffer the brunt of concerns about rising global rates and slowing growth. Gold, meanwhile, might remain supported by the outlook for a weakening dollar and continued geopolitical uncertainties.

"I won't really be worried

about gold, until we move back to $550-500," says Moore.

"The U.S. economy is still looking at pretty large deficits and there are broad concerns over the health of the dollar," he says. In addition, "if, let's say, Iran turns around and oil jumps up, gold can easily go back to $700."

Meanwhile, shares of metals miners were still sharply lower in recent action, even if they came off earlier lows. Both the Philadelphia Gold and Silver index and the Amex Gold Bugs index were recently down 3.9%, after each fell over 6% in morning trade. The CBOE Gold index was down 4.7%.

Among the biggest decliners,

Eldorado Gold

(EGO) - Get Report

was down 6.6%,

Freeport McMoRan

(FCX) - Get Report

was down 5.6% and

Gold Fields

(GFI) - Get Report

was down 5.8%.

Glamis Gold

(GLG) - Get Report

and was down 6% after cutting its gold production forecasts on Wednesday because of technical problems at a plant in Guatemala.

Agnico Eagle Mines

(AEM) - Get Report

was down 5%, after reaching an agreement with its underwriters to issue 8.45 million shares new common shares at $29.57 per share.

The newly launched

Market Vectors-Gold Miners

(GDX) - Get Report

exchange-traded fund, which tracks the performance of the Amex Gold Miners Index, was down 4.6%.

ETFs tracking the metals themselves also were down. The

iShares Silver Trust

(SLV) - Get Report

was down 5.8%, and the

StreetTRACKS Gold Trust

(GLD) - Get Report

was down 2.7%.