U.S. gold, silver fall early despite weak dollar

NEW YORK (Reuters) - Selling by funds and a lack of buying interest drove U.S. gold and silver futures sharply lower early on Tuesday despite a weaker dollar, and traders said prices could fall further if support levels on technical charts were breached.

At 9:55 a.m. EDT (1355 GMT), most-active gold for June delivery on the COMEX division of the New York Mercantile Exchange was down $6.90, or 1 percent, at $676.60 an ounce, trading in a tight from $675.40 to $682.30.

Leonard Kaplan, president at Prospector Asset Management, said that investors were frustrated with holding long positions in gold because prices failed to move higher.

"You're certainly seeing fund selling. And people are getting disappointed with the performance of gold. That's why you are seeing the selling," Kaplan said.

"Theoretically, gold should have been doing much better. You have the euro all-time highs. You have the oil strong. And gold just didn't perform as well," he said.

Kaplan said that the key support level was around $673, which was the recent low, and that prices could fall further it that level was broken.

By morning, the dollar was trading near its session lows against the euro. A lower greenback makes dollar-denominated assets like gold cheaper for investors holding other currencies.

U.S. oil futures fell slightly but held above $65 a barrel as they still drew support from high gasoline prices and the news that top exporter said it disrupted plans for suicide operations against its oil facilities last Friday.

Gold is generally seen as a gauge against oil-led inflation.