SAN FRANCISCO (MarketWatch) — Gold futures lacked direction on Tuesday, seesawing between losses and gains after a three-session decline of nearly 3%.
Strong physical demand, particularly from Asia, was still a key support, but strength in the dollar limited any advance for the precious metal.
Gold for June delivery GCM3 -0.54% fell $2.70, or 0.2%, to $1,431.60 an ounce on the Comex division of the New York Mercantile Exchange after trading at a high near $1,445. Over the past three trading sessions, prices tallied a loss of 2.7%.
Gold and other dollar-denominated commodities tend to fall when the dollar strengthens, making them more expensive for holders of other currencies.
“We would not be surprised to see gold head towards the $1,400 level as the U.S. dollar strength may cause gold sellers to come back to the market,” said Jason Rotman, president of Lido Isle Advisors in Newport Beach, Calif. With the market “starting to trade the idea” of an earlier [U.S. Federal Reserve exit or slowing of quantitative easing, “gold prices may have room to fall more.”
Gold prices on Monday fell $2.30, or 0.2%, as the dollar strengthened and investors weighed a report indicating the Fed is preparing to bring current monetary stimulus to an end.
The Fed has mapped out a plan for winding down its program of buying $85 billion in bonds each month, according to a report in The Wall Street Journal late Friday.
Tapering the Fed’s bond-buying program would make the U.S. dollar more attractive in terms of yield, analysts say. Also, the easy monetary policy tends to raise the risk of inflation, and gold is seen as a hedge against inflation.
Gold-futures prices suffered a drop of 7.8% last month and are trading about 2.6% lower month to date.
But “the physical and true gold market, not paper contract market, is on target for the best year ever and shortages and premiums in the physical market are the norm at this time,” said Steven Evanson, chief executive officer at Evanson Asset Management.
“The physical market will dictate the price of gold longer term but short gold-futures contracts suppress the price short-term,” he said.
Gene Arensberg, editor of the Got Gold Report, said investors in Asia “are scooping up as much or more of the gold recently returned to the market” from gold exchange-traded products like the SPDR Gold Trust GLD -0.20% .
“In that sense, gold is migrating from west to east at a pretty fast clip,” he said.
Gold holdings in the SPDR Gold Trust stood at 1,051.65 metric tons on Monday, unchanged from Friday, but down from 1,075.23 on May 1.
A report released Monday by Johnson Matthey showed that supplies of both metals swung to a deficit last year. The report attributed the drop in platinum inventories to the steep decline in output from South Africa.
On Tuesday, workers at Lonmin PLC UK:LMI -7.31% held a wildcat strike which closed the Marikana mine in South Africa and triggered worries about fresh violence at the site of protests that resulted in the deaths of 34 people. Lonmin suspended all work at the mine after employees refused to go underground.