Gold Falls From 25-year High As Investors Cash In

[george]

Gold falls from 25-year high as investors cash in

SINGAPORE: -- Gold fell more than $3 an ounce on Tuesday as investors booked profits after propelling the price above $550 to its highest level in 25 years the previous day.

Silver also lost ground, palladium was little changed from New York levels but platinum defied gold's decline and rose to its highest since March 1980 at $1,016 before falling back.

Dealers remained upbeat on gold, with investors diversifying into precious metals due to worries about the outlook for the dollar, global tension and rising energy costs.

"We saw some profit taking by the Japanese but I would expect the market to stabilize above $542," said a dealer in Hong Kong, a key bullion trading city in East Asia.

"Jewelers have stocked up before the Chinese New Year this month. That's why they are not so aggressive. Shops have already covered their stocks before the price started to go up," he said.

Spot gold fell to as low as $544.75 an ounce before rebounding to $545.00/545.75, still lower than $548.50/549.25 late in New York on Monday, when fund buying had pushed it up to $550.75 -- its highest since January 1981.

"Gold is still bullish for the month ahead but the speed of the rise alone may just slow for a while. There's a chance we are going into a consolidation for a while," said Commonwealth Bank of Australia commodities analyst Tobin Gorey in Sydney.

Gold, used in jewelry and investment, was expected to sustain the upward trend as long as it stayed above last year's peak of around $541, Gorey said.

Physical trading was quiet in Southeast Asia with markets in Indonesia, Malaysia and Singapore were closed for holidays but gains in Japanese bullion futures could offer some support.

Some dealers said gold looked overbought right now.

"The key question at this point is how much further can the market go before a correction occurs?" N M Rothschild said in a daily report.

Gold's 14-day relative strength index (RSI) stood at 78.53 on Monday, up from 62.04 on January 5. The market views an RSI of 30 or less as oversold and 70 or more as overbought.

RAPID SELL OFF

"The speculative net long position in COMEX gold eased between December 27 and January 3. Since this time, we expect that the long positions have built up significantly, given the significant rise in the gold price over the last two business days," Rothschild said.

"This leaves gold vulnerable to a rapid, short-term sell-off," it said.

The Commodity Futures Trading Commission (CFTC), a U.S. regulator, said last week the speculative net long position in New York's COMEX gold eased to 150,962 lots on January 3 from 154,522 contracts as of December 27.

In Japan, the benchmark December 2006 contract on the Tokyo Commodity Exchange rose as high as 2,047 yen per gram as speculators returned to the market after a holiday.

The contract later eased to 2,033 yen, still 40 yen higher than Friday's settlement.

The dollar edged up on Tuesday but was still within sight of three-months lows against the euro and the yen on expectations the Federal Reserve will soon end its 18-month cycle of dollar-boosting interest rate rises.

The euro was trading around $1.2065, down from $1.2088 in late New York trade.

Platinum rose to $1,008/1,012 an ounce from $1,001/1,005 late in New York. The metal had touched a high of $1,016 due to fund buying in Japanese futures.

Sister metal palladium was steady at $276/280 an ounce.

Silver fell to $9.12/9.16 an ounce from $9.20/9.23 late in the U.S. market.

--Reuters 2006-01-10