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Gold Prices Edge Lower

Contracts for April delivery fall $2.30 to $687.50 an ounce.

Gold was slipping Tuesday as the discrepancy between major speculative interest and limited physical demand led some traders to take profits.

April delivery gold contracts were falling $2.30 to $687.50 an ounce on the Comex division of the New York Mercantile Exchange, but the losses had been worse earlier. The

PowerShares DB Gold

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exchange-traded fund, which invests in bullion futures, was slipping also, off 1.1%.

The ETFs that hold bars of bullion,

streetTracks Gold Shares

(GLD) - Get SPDR Gold Trust Report


iShares Comex Gold Trust

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, were sliding in line with the metal.

"This is a much-needed correction," says Rhona O'Connell, a market analyst at GFMS Analytics in London. She says speculative interest in gold hasn't necessarily been matched by underlying long-term investment demand.

In addition, the recent volatility, which saw futures prices jump $23 an ounce in a single session last week, will have unnerved buyers in India, O'Connell says. However, the return of Chinese buyers to the market now that lunar New Year celebrations are over should boost demand, she says.

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The allure of gold as a safe-haven investment should become particularly appealing in China, with the Shanghai Composite Index sinking almost 9% overnight. Extended declines could magnify such an effect.

On the economics front, data were mixed. A report of much-worse-than-expected durable-goods orders for January was met with a robust reading on sales of existing dwellings last month. But one observer warns that the shine in home sales may be an anomaly.

"We do urge our clients not to fall into the 'giddy camp'

of the broad sunlit uplands of recovery in the market," writes Joseph Brusuelas, chief U.S. economist at IDEAglobal, in a research brief. "The two solid months of data, fueled by warmer-than-normal weather, will bite with a vengeance in February and March."

The overall tone in the market was bearish for the greenback, with the dollar trading for 118.97 yen, down from 120.57 yen late Monday. One euro was buying $1.3238, up from $1.3184 previously. Gold prices tend to move up when the dollar loses.

Back in bullion, the European Central Bank says it made net sales of 37 million euros of gold and receivables last week, or about 2.25 tons.

Elsewhere, Credit Suisse was busy in the mining patch. The brokerage upgraded shares of

Freeport-McMoRan Copper & Gold

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to outperform from neutral and hiked its target price to $70 from $50. The stock was recently shedding 4.1% at about $59, as metal prices dropped.

Likewise, shares of

Barrick Gold


also received a blessing, upgraded to neutral from underperform. Still, the stock was marked down about 1.9%.

As for base metals, copper was losing 7 cents at $2.80 a pound on the Comex, likely hurt by the weak durable-goods report. Market participants are said to be cautious in anticipation of new trade figures out of Asia.