Updated from 12:56 p.m. EDT
Gold and metals finished higher in volatile trading Tuesday, as the dollar reversed early strength.
Gold for August delivery finished on a gain of $8.10, or 1.4%, to close at $580.50 an ounce. Among other metals, silver for July delivery rose 30 cents, or 3%, to $10.27 an ounce.
Copper for July delivery gained 3.5 cents, or 0.1%, to $3.09 a pound amid concerns over strikes at
and other producers in Chile.
Copper producers all advanced along with the price of the metal, as workers at Chile's Escondida mine, which produces 7% of the world's copper, threatened to strike if BHP didn't agree to wage increases.
At the same time, the Chilean government boosted its estimates of GDP growth this year based on raised forecasts of copper prices. It now expects copper prices to average $2.40 a pound, compared with $1.25 previously.
BHP was recently up 2.3%,
was up 1%,
was up 1.3%, and
was up 1%.
Early in the day the dollar got a short-lived boost and metals slid on news that U.S. housing starts rose 5% in May, interrupting a three-month decline, fueled expectations of further rate hikes by the
. A stronger greenback pressures the price of dollar-denominated commodities such as gold, as it takes less of the currency to buy the same amount of gold.
But the Dollar Index, which tracks the greenback against a basket of key currencies, was recently down 0.3%.
The dollar fell back mostly against the yen after overnight comments from Bank of Japan Governor Toshihiko Fukui fueled expectations that the BOJ will hasten a process to unravel its five-year-old policy of keeping interest rates near zero.
Fukui said that interest rates need to move from zero "without delay," according to
Adding further pressure on the dollar, the European Central Bank is also widely expected to continue hiking rates a few more times this year, according to Michael Gregory, interest rate strategist with BMO Nesbitt Burns.
Sweden and Norway, two non-euro-zone countries, have also hiked rates over the past two days and said that rates may have to move higher than markets expect, he notes.
The Fed, meanwhile, is widely expected to tighten next week and possibly once more this year before pausing its two-year-long campaign of incremental rake hikes. The Fed is facing increasing evidence of a slowing housing market, which might eventually pressure it to pause.
In spite of Tuesday's strong housing starts data, the market received fresh evidence of deteriorating conditions in the housing market on Monday, when the National Association of Home Builders said its monthly index dropped to a 11-year low.
Commodities and global markets have been rocked for over a month amid concerns that global central banks are raising rates in concert to curb inflationary pressures, notably from surging commodities prices.
"We believe that in the short term, gold will continue hovering in a broad range and take direction from moves in the U.S. dollar against
major currencies," writes Frederic Panizutti, metals analyst at MKS Finance in Geneva.
"The mood remains very cautious as the metal is trying to consolidate and find a base," with gold trading in a wide $550 to $585 range, he adds.
Michael Jalonen, metals analyst with Merrill Lynch, believes the recent weakness in gold was mostly driven by the removal of excess speculation, a process he believes is nearly over. "The recent downdraft in bullion price should not be viewed as a surprise, as it had been driven by speculative buying, rather than jewelry demand, whose buyers are more price sensitive," he wrote.
The weakness was also caused by seasonal trends, mostly the end of the Indian wedding season in May. But "looking ahead, we believe the bullion price has limited downside from the present level, though will likely trade within the $500
to $600 ounce range for the next month or so," Jalonen writes. Jewelry demand usually spurs another rally in gold in the late summer and early fall, he adds.
Other unpredictable factors, such as geopolitical jitters or rising crude oil prices, could also come into play.
Gold, which acts as a hedge against inflation pressures, had received a boost in overseas trading as crude oil prices advanced Tuesday on news that China had made a deal with Saudi Arabia to build long-term strategic oil reserves.
Crude oil for July delivery was recently up 2 cents at $69 a barrel in Nymex trading.
Gold's safe-haven status came into play in early trade amid reports that North Korea is poised to test a nuclear missile. The report in
The New York Times
came out on Monday but was overshadowed then by easing tensions over Iran's nuclear ambitions.
Iranian President Mahmoud Ahmadinejad on Friday said that incentives offered by U.N. Security Council members plus Germany to induce Tehran to stop its nuclear program were a "step forward." On Sunday, he followed up the remarks by saying "a positive atmosphere" had been created, which might allow for a resolution to the standoff, according to
But tensions were revived on Monday as President Bush said that Iran faces Security Council action and stronger sanctions if it rejects the offer.
Meanwhile, shares of metals miners were rebounding in recent action, as Wall Street cheered the strong housing starts number. The Philadelphia Gold and Silver index was recently up 3.3%, the Amex Gold Bugs index was up 3.8%, and the CBOE Gold index was rising 2.8%.
Among the biggest gainers,
were both advancing 4%.
was rising 5.3% after news that the stock of the Jersey, Channel Islands-based company was reinstated in London's FTSE Gold Index.
, a gold and copper miner, was recently up 4%, after Merrill Lynch upgraded the stock to buy from neutral, citing Merrill's recently raised gold forecasts.
The recently launched
Market Vectors-Gold Miners
exchange-traded fund, which tracks the performance of the Amex Gold Miners Index, was up 1.5%.
ETFs tracking the metals themselves were also rising. The
iShares Silver Trust
was up 3.6%, and the
StreetTRACKS Gold Trust
was rising 1.5%.