Precious Metals Dip

Gold and silver slide amid ongoing concerns about the Fed's plans.
Publish date:

Updated from 12:32 p.m. EDT

Gold finished lower in volatile trading Thursday, remaining under pressure amid concerns about global economic growth.

Gold for June delivery finished down $10.90 at $680.90 an ounce, after rising to $695 in early action.

Among other metals, silver for July delivery lost 72 cents to $12.52 an ounce, while copper for July delivery added 3.9 cents to $3.71 a pound.

Global financial markets have all fallen sharply since late last week amid concerns that central banks are raising interest rates to curtail growth and inflation pressures, most notably from soaring commodities prices.


Dow Jones Industrial Average

plunged over 200 points Wednesday, its worst single-day point loss in three years. Options expiration on Friday is also adding to volatility in markets, including commodities.

"While some equity markets are showing a minor recovery

today, the outlook for the global economy seems to hang over the gold market," writes Nell Sloane, gold analyst at, on Thursday.

Since last week, the market's concern has centered on frustration that the

Federal Reserve

might not pause its 22-month long campaign to lift rates, as soon as many hoped. Some fear a sustained tightening bias might eventually derail economic growth.

This also impacted crude oil prices in morning trade, adding to pressure on gold, which acts as a hedge against inflation pressures. Crude oil, however, bounced back in the afternoon and was recently adding 56 cents to $69.25.

On Thursday, Fed Chairman Ben Bernanke didn't end the suspense, but he signaled that the central bank is "carefully watching" the housing market, which continues to cool in an "orderly and moderate" manner.

The remarks suggest that the Fed is taking into consideration the lag effect of previous rate hikes on housing and the economy, which leaves the door open for a pause sometime soon, according to Randy Diamond, an equity trader at Miller Tabak.

The idea that the central bank might soon pause its rate-hike campaign would reassure markets about global growth, but it has been a key factor behind weakness in the dollar in recent months.

This remains a positive factor for gold and metals. A weak dollar raises the value of dollar-denominated commodities, such as gold, as it takes more of the currency to buy the same amount of the metal.

Bernanke's comments helped overcome those of French Finance Minister Thierry Breton, who said Wednesday he would do "everything" so that the euro's advance against the dollar doesn't continue. The dollar has fallen near one-year lows vs. the euro and 8-month lows vs. the yen, making exports from Europe and Japan less competitive.

Speaking after Bernanke, Richmond Fed president Jeffrey Lacker, who votes on rates this year, said that recent inflation reports were "disappointing" which made a pause "less likely". The dollar did gain some ground vs. the euro and the yen after the comments. But the remarks had little impact on metals markets, and even the Dollar Index, which tracks the greenback vs. a basket of key currencies, was still down 0.3% in recent action.

Many analysts believe that the ascent of gold and metals -- and to some extent that of equity markets -- had gone on far too long without any meaningful pullback. Now that some of the speculative money has exited, market players are trying to put a floor under the drop in prices.

"We believe that gold remains vulnerable to sharp price moves in this very choppy and illiquid market, with a possibility of another dive lower before further gains could be acquired," writes Frederic Panizzutti, metals analyst at MKS Finance in Geneva.

While MKS believes that gold can still make some upside, the firm thinks there could be a retesting of the $600 mark if gold's spot price fall below $675 an ounce.

"The market is looking confused, with prices making sharp rebounds and retreats within minutes in very illiquid conditions,

with the action mostly fund driven," Panizzutti notes.

In volatile trading, the shares of metal-mining companies continued to drop in recent action Thursday. The Philadelphia Gold and Silver index was down 1.3%, the Amex Gold Bugs index was losing 1.6% and the CBOE Gold index was down 1.0%.

Among the biggest movers,

Kinross Gold

(KGC) - Get Report

was recently down 2.8% after HSBC downgraded the stock to neutral from overweight.

Eldorado Gold

(EGO) - Get Report

was down 3%,



was down 2.9% and

Freeport McMoRan

(FCX) - Get Report

was down 2.6%.

On the upside,

Harmony Gold

(HMY) - Get Report

was up 1.5% after operations resumed at its mines in South Africa following a one-day strike on Wednesday.

Mittal Steel

(MT) - Get Report

was up 0.4% after officially launching its $27 billion offer for its Luxembourg-based rival