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Gold cuts losses after hitting three-week lows

Short-term sentiment remained bearish and traders said charts suggested a further drop in prices.

Gold XAU fell as low as $620.60 an ounce, its weakest since Aug. 26, before recovering to $625.20/626.00 by 1300 GMT. It closed at $628.80/629.60 in New York late on Monday.

“There is a tendency for the market here to drift lower, looking to test support around $620,” said David Holmes, director of precious metals sales at Dresdner Kleinwort Investment Bank.

Gold had come under pressure from oil, which slipped towards $73 a barrel as a fragile truce held between Israel and Lebanon, while oil kept flowing from North America’s largest field after expectations of a full shutdown for repairs.

Thousands of refugees headed home to south Lebanon and Israeli forces began pulling back from some positions they had occupied.

“With the ceasefire imposed by the UN in effect in Lebanon, some discounting of the war premiums on gold should be expected and it would not be surprising for gold to extend the weakness in the short term,” Standard Bank said in a report.

The dollar fell after weaker-than-expected July US wholesale price data and the lowest reading of New York state factory activity in more than a year.

The data reduced the chances of a September Federal Reserve interest rate increase, dealers said.

Lower interest rates are generally seen negative for the dollar and positive for gold.

Technical picture

Charts painted a negative picture.

“Technicals certainly are looking more negative now and that has the potential of dragging gold lower,” said John Reade, analyst at UBS Investment Bank.

Traders noted a rise in trading volumes at the time of gold fixes. That might be an indication of selling by central banks, but there was no confirmation.

Summer holidays slowed physical trade in Japan and its volatile price scared off jewellers in India, the world’s largest gold consumer, and other parts of Asia. [ID:nSP136140]

Silver XAG was also weak but attracted buying interest from jewellers and the industrial sector after it fell on Monday to its lowest since August 2 at $11.70 an ounce.

Spot silver XAG was quoted at $11.97/12.07, down from $12.10/12.20 late in New York. Platinum XPT edged up $1 to $1,222/1,227, while palladium XPD rose to $315/319 an ounce from $313/318 in the US market.