NEW YORK Gold slid to a 6-1/2-week low in thin pre-holiday dealings on Monday as the dollar rose on signs of an improving U.S. economy.
Spot gold traded as low as $1,090.65 an ounce, well below $1,112.25 an ounce late in New York on Friday. It pulled back up to $1,091.30 an ounce at 3:32 p.m. EST.
On the COMEX division of the New York Mercantile Exchange, gold futures for February delivery slipped as far as $1,090.80, but bounced off the session low to settle at $1,096.00, down $15.50 an ounce.
Both lows were last seen on November 6.
In early business, gold tossed around at unchanged levels as some players squaring books as year-end approaches sold holdings while others bought in anticipation of renewed price appreciation in 2010.
But traders said pre-holiday dealings were very light, allowing for a quick dip to the 6-1/2-week bottom.
"Sellers in gold were motivated by the rising dollar, year-end close outs, and sell stops as we moved through the $1,099 level," said George Gero, vice president at RBC Wealth Management in New York.
Others attributed gold's main thrust downward to the dollar, which advanced to 3-1/2-month highs on the euro about the same time as gold hit it's session low.
Some currency market players bought the greenback after selling it for most of the year, in hopes U.S. economic growth will pick up steam in 2010.
The currency is expected to firm further in early 2010, analysts said, curbing gold's appeal as an alternative investment and making the precious metal more expensive for holders of other currencies. .DXY
Concerns over debt problems in Dubai and Greece also helped push the dollar higher against the euro.
Analysts said gold's slide to session lows accelerated after it fell below the $1,100-an-ounce level on both spot and futures prices. Lower volumes also sped the decline.
Gero said a recent loss in open interest of 9,800 futures contracts was another indication of a deteriorating short-term technical position
He and others also noted that the surging dollar also slammed crude oil prices. Oil's rise had underpinned the precious metal because of inflationary implications.
In a quick turnaround, some players exited the inflationary hedge as oil prices fell toward $72 a barrel.
President Charles Evans of the Chicago Federal Reserve Bank said in a television interview he expects the U.S. economy to grow 3.0 to 3.5 percent over the next 18 months, and low inflation will give the central bank room to keep monetary policy easy for an extended period.
Analysts said Evans' benign inflation outlook contributed to selling of gold, which is used as an inflation hedge and tends to rise with inflation fears.
"There'll be a better time to buy," said Robin Bhar, an analyst at Calyon, adding that longer-term the gold rally still has more steam left.
"Its not the end of the gold story yet."
Analysts also see bullion prices stalling in the short-term due to weak physical buying.
Noncommercial net long U.S. gold futures positions rose 0.7 percent to 256,108 lots in the week to December 15 from 254,429 lots, a weekly report by the U.S. Commodity Futures Trading Commission showed.
The week-on-week rise was the first in three weeks.
Meanwhile, the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,126.611 tonnes as of December 18, up 6.097 tonnes or 0.5 percent from the previous business day. Holdings hit a record high of 1,134.03 tonnes on June 1.
Silver was at $16.97 an ounce from $17.26 and platinum was at $1,414 from $1,427.50. Palladium was at $360.50 from $359.50.
On COMEX, March silver futures ended 28.5 cents lower at $17.0350, NYMEX January platinum lost $5.80 to end at $1,423.50 an ounce, and March palladium finished with $2.50 declines at $365.40 an ounce.