Gold futures fell to their lowest level in more than a week Tuesday as the dollar strengthened on renewed European debt worries and after a Chinese official hinted that future gold purchases by the country could be limited.
Around 9:06 a.m. EST (1406 GMT), lightly traded but nearby March gold is down $10.50, or 0.93%, to $1,113.10 an ounce on the Comex division of the New York Mercantile Exchange. April, which has the most open positions, is down $11, or 0.98%, to $1,113 and bottomed at $1,108.20, its weakest level since Feb. 26.
"Gold is down, alongside a slightly stronger dollar," said Walter de Wet, analyst with Standard Bank. "Some selling in gold may have been on the back of a statement that China will be prudent in buying gold to diversify its foreign reserves."
China's chief foreign-exchange regulator, Yi Gang, suggested the country's future gold purchases would be limited by the relatively small size of the gold market and price impact of such an action. He said "gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold."
The dollar, meanwhile, rose overnight when the British pound and euro fell on warnings about deteriorating debt quality in Europe by Fitch Ratings and Moody's Investors Service, prompting investors to see refuge in the dollar and yen.
"The euro is down and the dollar is up. Energy is down as well. So it's making it real easy for the metals to come down," said Patrick Lafferty, a commodity trading adviser with MF Global.
Investors often buy gold as a hedge against dollar weakness but conversely sell when the U.S. currency strengthens. Furthermore, a more muscular greenback makes dollar-denominated commodities more expensive in other currencies.
The euro has fallen to $1.3550 from $1.3630 late Monday.
Lafferty said much of the selling in gold is probably in the form of liquidation, or selling by traders to exit from positions in which they previously bought.
"The market was grinding higher the past couple of weeks," he said. "It couldn't get through the $1,150 level last week and couldn't even make a really strong effort at it. So now you've got liquidation going on."
Other precious metals have followed gold lower, with platinum and palladium metals softer despite a 46% year-on-year rise in February Chinese vehicle sales that bodes well for demand for auto catalysts.
Most-active May silver is down 29.2 cents, or 1.69%, to $16.98 an ounce. April platinum is $24.60, or 1.54%, lower at $1,575.50 an ounce. June palladium is down $10.55, or 2.24%, to $460.80.
-By Allen Sykora, Dow Jones Newswires; 541-318-8765; allen.sykora@dowjones.com
