'Smell of Fear' Hits Gold

The metal plummets below $600 an ounce as speculators flee commodities in general.
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Updated from 11:29 a.m. EDT

Gold took a beating Tuesday as lack of physical buying and weakness in crude prices proved too much for metal traders to bear.

Not even a threat of nuclear tests by North Korea could help boost demand for the metal as a safe haven in times of geopolitical uncertainty.

December bullion futures closed down $21.80 at $581.50 an ounce on the Comex division of the New York Mercantile Exchange, and the bullion exchange-traded funds,

streetTracks Gold Shares

(GLD) - Get Report

and

iShares Comex Gold Trust

(IAU) - Get Report

, also weakened, each down about 3.3% recently.

"There remains a distinct smell of fear in the air over the bullion pits at the moment," says Jon Nadler, an analyst at Montreal bullion dealer Kitco. He sees technical support for the December contract kicking in around $575.

"The message is that previously gold made a high, it's in a correction and there is really not a conceptual story or a risk appetite reason to invest, other than for a short-term trade," says Woody Dorsey, behavioral market strategist at Market Semiotics, who expects continued weakness going forward.

Nymex November crude prices

dipped below $60 a barrel in morning action, and helped reduce investor anxieties regarding inflation.

Contracts for light sweet crude were recently $1.73 lower at $59.30 a barrel mid-afternoon.

Oil is seen as a key driver in pushing up consumer prices at the retail level and lower crude prices reduce that pressure.

The general downdraft in bullion prices also crushed any nascent optimism.

"We had a lot of physical demand when the spot price dipped below $600 around the middle of the month," says Bernard Hunter, director of precious metals at Toronto-based ScotiaMocatta.

Now that demand has been met and that gold has proved unable to stay above $600 an ounce, jewelry fabricators may wait until there is further price weakness before returning to the market, he says.

"Physical buyers, such as jewelers, are very savvy when it comes to playing the market their way," adds Hunter. He also spies some switching from futures to the ETFs, although overall there is liquidation by speculators.

On the foreign exchange front, the greenback edged higher, further undermining the yellow metal.

The dollar was recently trading at 17.915 yen, up from 117.67 yen late Monday. It was also marginally stronger against the euro, which was recently trading at $1.2728 vs. $1.273 previously.

Among the miners, the Amex gold bugs index was swooning 5.5%. Shares of

Goldcorp

(GG)

, and

Agnico-Eagle Mines

(AEM) - Get Report

were leading the pack lower, down 6.6% and 7%, respectively.

Market Vectors Gold Miners

(GDX) - Get Report

exchange-traded fund, which tracks a broad basket of precious metals producers, was off 5%.

Silver was also falling, with Comex contracts for December delivery closing 59.5 cents lower at $11.045 an ounce, and the silver bullion ETF,

iShares Silver Trust

(SLV) - Get Report

, were tumbling 5.5%.

In the silver patch, shares of

Coeur d'Alene Mines

(CDE) - Get Report

, and

Hecla Mining

(HL) - Get Report

, and

Silver Wheaton

(SLW)

losing 4.1%, 8.6%, and 7.7% respectively.

Base metals weren't immune to the general downdraft, with Comex December copper contracts closing down 14.95 cents at $3.28 a pound.

"This weaker tone may have been partially to do with

Teck Cominco's

(TCK)

success in reaching a tentative agreement with its Highland Valley union," writes William Adams, an analyst at

Basemetals.com

. The agreement "removes one of the potentially bullish factors in the market."

Shares of Teck were recently losing 3.5%, while those of diversified miner

Rio Tinto

were

(RTP)

off 2.9%.

In aluminum, Canadian smelter

Alcan

(AL) - Get Report

announced it would buy back up to 5% of its stock.

That news, however, didn't help much, with the stock shedding 1.9% by mid-afternoon. American producer

Alcoa

(AA) - Get Report

was off about 1.4% recently.