Gold falls toward $900 on dollar rise, weak commods

A shop attendant arranges gold jewellery inside a shop in the southern Indian city of Hyderabad June 30, 2009.

NEW YORK/LONDON (Reuters) - Gold futures fell toward $900 an ounce on Wednesday on a higher dollar and heavy oil losses, losing more than 2 percent as investors preferred the U.S. currency instead of gold as a safe haven in the face of economic uncertainties.

In spite of equities market weakness amid recession worries, bullion failed to rise because of lessened inflation concerns and as flight-to-quality buying was directed into U.S. Treasury bonds and the dollar.

Bruce Dunn, vice president of trading at New Jersey-based Auramet Trading, cited the absence of physical demand and technical selling for gold's weakness.

"I am not surprised by the sharp price fall. The gold market has been overextended for a long time with the length of the long positions and the exchange-traded funds," Dunn said.

Hard metal commodities weakened across the board, hit by global economic concerns and worries over a potential clampdown by the U.S. futures regulator on speculation in energy and commodity trading.

U.S. August futures settled down $19.80, or 2.1 percent, at $909.30 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold traded at $908.45 an ounce at 3:06 p.m. EDT, against $923.30 an ounce late in New York on Tuesday. Meanwhile platinum was at $1,094.50 an ounce from $1,132.

The dollar climbed broadly as growing risk aversion prompted buying of the precious metal as a safe store of value. The U.S. currency is currently the metal's chief driver.

Gold buying in India, the world's largest bullion consumer, was weak as the dollar strengthened against the rupee, making the metal more expensive for local consumers.

Meanwhile, gold jewelry sales in Dubai were down 30 percent in June from a year earlier, as high prices and the economic downturn hit buying.

REGULATORY PRESSURE

News the U.S. futures market regulator, the Commodity Futures Trading Commission, was considering a clampdown on excessive speculation in commodities by restricting holdings of big players also hurt prices, dealers said.

On Tuesday, CFTC Chairman Gary Gensler said in a statement that the agency would hold hearings to see whether federal speculative limits should be set by the CFTC on all commodities of finite supply, especially energy commodities such as crude oil and other energy products.

"There is a chance that you are seeing disinvestment and speculative profit-taking across the entire commodities complex following a surge of investment money into the commodities," said Auramet's Dunn, referring to CFTC's plan.

The news prompted speculation that the approval of proposed U.S. platinum and palladium ETFs could be delayed until the CFTC had finished its deliberations.

"We do wonder whether the proposed U.S. listing of platinum and palladium ETFs - under consideration by the SEC at present - can possibly be approved until the CFTC's investigations are concluded," UBS strategist John Reade said in a note.

Palladium was at $231.50 against $239. Silver fell below $13 an ounce for the first time since May 5. It was last at $12.88 an ounce against $13.10.

(Editing by Christian Wiessner)