Quite a good read on gold. Not the normal 'hype'

Gold under pressure from firmer dollar, stocks

LONDON, Aug 8 - Gold was knocked back from near three-week highs on Thursday as firmer stock markets and a resilient dollar pulled the rug from under the precious metal.

Spot gold was trading at $311.45/311.95 a troy ounce at 1455 GMT, down from $314.50/315.00 an ounce at the New York close on Wednesday. ADVERTISEMENT

The precious metal is 16 percent higher than this time last year and 12 percent higher since the start of the year.

Gold's losses were tied to firmer European stock markets and a firmer dollar, which rose across the board on expectations of an interest rate cut and was supported by opening gains on Wall Street (CBOT:^DJI - News).

Higher stock markets tend to draw fund money away from the safe-haven asset of gold while a firmer dollar makes the yellow metal more expensive for consumers with non-dollar currencies.

"It's correcting itself against the currencies and the indices," said Rory McVeigh, a bullion trader at Mitsubishi.

Gold earlier hit $314.50 an ounce, its firmest level since July 23, in follow-up buying prompted by speculation that a leading North American miner had been a buyer in the spot market to reduce its forward hedge book.

Howard Patten, metals analyst at Barclays Capital, estimated that producer hedge buying had totalled up to 800,000 ounces.

Gold fell to a three-month low at $298.45 an ounce last Thursday, hurt by market feeling that a rebound in rock-bottom share prices and improvement in the U.S. economy were imminent.

But bullion defied conventional logic on Wednesday to erase those losses, gaining close to $10 while stocks and the dollar were also strengthening.

The metal, usually seen as a safe-haven investment when other assets such as equities and the dollar are weakening, found support in market talk of a possible Federal Reserve interest rate cut.

Speculation that interest rates would come down highlighted concerns over the U.S. economy, strengthening gold's appeal as a safe-haven asset and encouraging funds to move back into the market.

"Further cuts in interest rates would reduce the likelihood of additional producer hedging, a potentially bullish development," Deutsche Bank said in a market note.

This year, the gold rally has prompted many miners to change their risk management strategies by cutting back the amount of gold that they sell forward, or hedge, which has in turn cut off the amount of supply pumped into the market.

Lower U.S. interest rates would reduce the amount of profit that a mine could obtain from its hedge book.

The trend among mining companies to buy back gold sold forward to lock in prices for unmined nuggets has helped gold rise some 17 percent in 2002, peaking above $330 two months ago.

The rally has also been fired by a weakening dollar and geopolitical tensions ranging from Middle East violence to fears of a repeat attack on the U.S. mainland.

The supportive trend looks set to continue, with the world's number one gold producer, Newmont Mining Corp. (NYSE:NEM - News), saying earlier this week it would accelerate the closure of the hedge book it inherited in a merger with Australia's Normandy Mining.

Silver was at $4.65/67 an ounce, down from the previous New York close of $4.67/69 an ounce. Platinum (XPT=) was quoted at $538/542 an ounce, up from $533/537 while palladium (XPD=) was at $319/325.00 from $317/323.