Gold prices plunged for a third straight session Monday as traders ditched the metal on news that U.S. Secretary of State Condoleezza Rice had made a surprise visit to Beirut to help broker a peace deal. Prices for August contracts hit a low of $602.50 per ounce at midmorning before rebounding to close down $6.60, or 1%, at $613 on the Comex division of the New York Mercantile Exchange. (Meanwhile, the fund "roll' continues, as open interest in the August contract continues to decline, now 12.3 million ounces vs. 14.1 million Friday, and is growing in the December contract; now 10.9 million ounces vs. 9.5 Friday.) Shares of the bullion-exchange-traded funds iShares Comex Gold Trust ( IAU) and streetTRACKS Gold Shares ( GLD) followed the metal down. "Traders dumped gold this morning because Condoleezza Rice was going to bring peace to the Mideast and to the world," says Woody Dorsey, behavioral market strategist with Market Semiotics. "Then there was a sense that maybe we've oversold it and maybe the conflict won't be over in a heartbeat." Indeed, the meeting between Lebanese Prime Minister Fouad Siniora and Rice -- who is scheduled to meet next with Israeli prime minister Ehud Olmert -- is not expected to result in a cease-fire anytime soon, CNN reports. Dorsey expects gold to trade in a sideways range, as large investors seem unwilling to commit to increase their bullion holdings but aren't keen to liquidate either. Neither, it seems, are speculative traders. A report from Toronto-based precious-metals dealer ScotiaMocatta notes that data from the Commodities Futures Trading Commission show that fund positions edged modestly higher in early July, the latest data available, adding 212,000 ounces, to 11 million by July 18. The gold price pullback may provide a useful opportunity for investors to accumulate positions. "For long term it is probably a buying opportunity, but in the short term the price will be dominated by other things," says Peter Cardillo, chief market analyst at New York-based S.W. Bach.
It seems that mutual fund managers were thinking along the same lines. "We have been adding to some of gold positions, and we think it will move higher into the fall," says Brian Hicks, co-portfolio manager of ( PSPFX) U.S. Global Investors Global Resources , ( UNWPX) U.S. Global Investors World Precious Minerals and ( USERX) U.S. Global Investors Gold Shares funds. Hicks particularly likes Gold Corp ( GG), which he says is a low-cost producer with a good record of growth and has strong management. He also likes and owns miner Silver Wheaton ( SLW), which is well positioned from a rally in prices of the white metal. Expected softness in the U.S. dollar going forward as well as seasonal gold buying for jewelry fabrication purposes should push the price up later this year, perhaps to over $700, he says. Shares of Barrick Gold ( ABX) and Newmont Mining ( NEM) were trading up late in the day, in line with the broader market indices. Freeport-McMoRan Copper and Gold ( FCX) shares were recently trading down. In the other metals Comex September copper closed at $3.3050 a pound, up 2.75 cents on the back of rekindled labor unrest at Chile's Escondida copper mine.