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gold tumbles on profit taking DJ NY Precious Metals Review: Gold Tumbles On Profit-Taking
DOW JONES NEWSWIRES



Gold futures did an abrupt about-face Monday, hitting seven-week highs in
overnight screen trading before turning sharply lower largely on profit-taking,
traders and analysts said.

Several analysts suggested some traders were exiting flight-to-safety
positions since the Israeli-Hezbollah fighting has not become even more
widespread, as some may have feared. Other catalysts, they added, were a
stronger dollar, softer crude oil, caution ahead of Federal Reserve Chairman
Ben Bernanke's congressional testimony this week, and chart-based factors.

August gold settled down $16.10 to $651.90 an ounce on the Comex division of
the New York Mercantile Exchange.

The contract had gotten up to $677.50, its strongest level since May 24, in
overnight screen trading due to follow-through buying from last week and
continued fighting between Israel and Hezbollah forces in Lebanon. But then
gold gave up more than $30 to its low for the session of $646.

"We're seeing some profit-taking," said Paul McLeod, vice president for
Commerzbank. "However, the markets were quite thin. I think the moves were
exaggerated, given the volumes that were traded. It certainly wasn't a big rush
to the exit doors."

Some of the long liquidation may have been because the Middle East situation
doesn't "look particularly worse than it did on Friday," said McLeod.

"There were some developments, but it didn't fully escalate," he said. "It
seems like the nature of the engagements right now is somewhat established."

John Person, president of National Futures Advisory Service, offered a
similar view.

"I think it (gold) was a little overvalued. People had rushed in last week as
a precaution or flight-to-quality purchase, as there was uncertainty about how
intense the Middle East conflict would get."

The fighting has remained in Lebanon and Israel rather than spreading
elsewhere, so "we've seen that fear-factor premium erode," said Person.

During the course of the day, several analysts cited reports by some news
outlets quoting an Israeli official as saying the offensive against Hezbollah
targets in Lebanon could end in a few days.

Still, gold prices continue to have a considerable amount of "risk premium"
due to the Israeli-Hezbollah situation and other geopolitical worries, added
McLeod.

"That is what has moved us the last $50," said McLeod of a steady rise from a
$546.40 low back on June 14. At the overnight high, the August futures had
risen 24% in a little over a last month.

"We're going to be headline-driven until there is a resolution," added
McLeod.

Person suggested several markets were intertwined, with gold sliding as
equities stabilized and crude fell. As gold was closing, August crude was down
$1.23 to $75.80 a barrel.

Other traders also cited dollar strength as a gold-bearish influence, as the
euro slid as far as $1.2512 from $1.2652 late Friday.

Person listed other factors that may have been weighing on gold besides the
Middle East situation.

"On Friday, we saw a lot of gold stocks down, which was something a little
bit eerie," he said, noting that gold-mining equities sometimes lead the
commodity.

Concerns about the Federal Reserve also may have played a role in gold's
pullback, with Bernanke scheduled to address the Senate banking panel on
Wednesday and House Financial Services panel on Thursday, said Person. The
statement after the late-June Federal Open Market Committee meeting had left
financial markets thinking there was a chance of a pause ahead in Fed monetary
tightening.

Should Bernanke suggest this week that the Fed will remain vigilant in
fighting inflation, this could be construed to mean more rate hikes are coming,
explained Person. If so, this could mean slower economic growth and less
expansion and inflation, thus taking away one of the reasons some investors buy
and hold gold.

Technically, pointed out Person, August gold has not been able to hold above
the 61.8% Fibonacci retracement of the decline from the May high to the June
low. This Fib level lies around $666.

The futures have been above this Friday and Monday but were not able to close
above it, pointed out Person. The market also roughly held right around the
$675 psychological area.

McLeod linked silver's weakness somewhat to economic fundamentals rather than
a lock-step move with gold. September silver fell 44 cents to settle at $11.09
an ounce.

Person pointed out that silver had not taken off to the upside as
dramatically as gold had the last couple of days. In fact, the metal has not
been able to get above last Wednesday's $11.82 peak.

If traders feel less need to hold gold due to Middle East concerns, they
likewise would feel less need to hold silver, said Person.

Meanwhile, any worries about the Fed remaining vigilant on interest rates are
also likely to hold back silver, particularly since this metal - like copper -
has industrial applications, observers said.

The Platinum Group Metals have largely tracked the moves in gold and silver.
October platinum lost $17.50 to $1,250 an ounce, while September palladium slid
$11.50 to $323.

"I think it was just the news that Israel may look to halt the attacks within
the next couple of days," said one trader. "In London, they (PGMs) opened up
pretty strongly, but fell off all day."

He also blamed the softer tone in crude oil, while another trader cited the
firm tone in the U.S. dollar.

Both characterized the bulk