Gold Rally Takes a Breather

Weak economic data reduce concerns about inflation.
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Updated from 11:44 a.m. EST

Gold dipped following a big move in the past six weeks and after economic data added to the picture of a slowing U.S. economy.

Contracts for February delivery of bullion closed down $3.40 at $643.70 an ounce on the Comex division of the New York Mercantile Exchange. Spot prices have rallied more than 10% since early October.

On the economic front, the Commerce Department said durable-goods orders fell 8.3% in October vs. the prior month, well below consensus estimates of a 5% decline and in stark contrast to gains of 8.7% in September.

"It doesn't look good," says Edward Meir, an analyst at commodity brokers Man Financial. "Even if you take out the aircraft orders, the overall index was down."

The drop partly erases an unexpectedly high September figure, which was boosted by sales of airplanes, he notes.

Meir says that that as the economy slows, inflation expectations should reduce also, and that could help undermine gold prices. Some investors see moves in the price of bullion reflecting future changes in the general price level.

Separately

Federal Reserve

Chairman Ben Bernanke noted that inflation "has been somewhat better behaved of late" and should "moderate gradually" going forward. However, he remains concerned that the problem could be reignited if policymakers don't remain vigilant.

Also in the morning, the National Association of Realtors said 6.24 million existing homes were sold in October. That compares with a revised figure of 6.21 million for September and a forecast of 6.14 million. Despite the unexpected uptick, the first since February, some of the underlying statistics still show significant weakness. The inventory of unsold homes grew to 7.4 months vs. 7.3 in September and 4.9 months a year before. The NAR also said home prices fell 3.5% over the last 12 months.

The dollar had a mixed reaction to the data but continued to weaken vs. the euro, which was recently trading at $1.315 vs. $1.3126 late Monday. It was holding up well against the yen, buying 116.23 yen vs. 116.08 previously. The value of gold has been boosted by the broad decline of the U.S. dollar lately.

On the technical analysis side, some chart watchers say that

streetTracks Gold Shares

(GLD) - Get Report

, one of the exchange-traded funds that holds the yellow metal, looks particularly weak.

Prices for the ETF have been tracing an upward channel lately, according to John Bollinger, president of Bollinger Capital and inventor of Bollinger bands, a technical analysis tool. He says the upper Bollinger band is currently at $63.63, with the middle band at $62.08 and the lower one at $60.51.

"If the shares close down more than 80 cents, then it's a short-term sell signal for me," he said. "I'm actually unimpressed by gold's action here."

The streetTracks Gold Shares were recently off 38 cents at $63.32.

The other bullion ETF,

iShares Comex Gold Trust

(IAU) - Get Report

, was losing also, down 0.6% recently.

In the official sector, the European Central Bank announced it sold 106 million euros of gold and receivables, about 6.75 tons, last week.

Among the miners, Lehman Brothers upgraded shares of

Freeport-McMoRan Copper & Gold

(FCX) - Get Report

to overweight from equal weight. Nevertheless, Freeport shares were recently down 1.66%.

Elsewhere, HSBC Securities upgraded shares of

Newmont Mining

(NEM) - Get Report

and

AngloGold Ashanti

(AU) - Get Report

to overweight ratings from neutral previously. Still, both Newmont and AngloGold were recently down 0.3% and 0.4%, respectively.

HSBC also raised ratings on

Harmony Gold

(HMY) - Get Report

and small-cap

Durban Roodepoort

(DROOY)

to neutral from underweight. Harmony was recently up 0.5% while Durban was unchanged.

In base metals, March-dated copper contracts closed down 4.55 cents at $3.17 a pound.

"There's more bearish sentiment creeping in to the metals markets," says Andy Cole, a base metals analyst at Metal Bulletin Research in London. "People are particularly worried about just how damaging the U.S. slowdown will be for copper consumption."

Meanwhile, U.S. copper producer

Phelps Dodge

(PD) - Get Report

got dinged twice over. UBS downgraded the stock to neutral from buy, while Lehman Brothers reduced its rating to equal weight from overweight. Shares were recently off 1.2%.