Gold Ends Lower with Fed, Europe in Sights

SAN FRANCISCO (MarketWatch) — Gold futures settled lower Tuesday, giving back some of the previous session’s gains and feeling the pinch of a higher dollar amid renewed concerns about the euro zone.

Gold for August delivery (CNS:GCQ2)  declined $9.30, or 0.6%, to end at $1,579.80 an ounce on the Comex division of the New York Mercantile Exchange.

Traders reacted negatively to news Italy’s prime minister, Mario Monti, said he couldn’t rule out the country needing more from the euro zone’s rescue fund, and a German court reportedly could take more than three months to rule on the country’s participation in funding the European Stability Mechanism. The ESM was expected to be operational July 1.

The dollar traded at a two-year high compared to the euro, and a higher U.S. unit is detrimental to gold and other dollar-denominated commodities as it makes them more expensive to holders of other currencies, dimming their appeal.

A few traders also stayed to the sidelines as they awaited minutes, due Wednesday, from the most recent Federal Reserve meeting setting monetary policy and interest rates.

Gold prices had traded higher after the Bank of Japan said it will increase asset purchases to help beat deflation.

Earlier Tuesday, Bank of Japan Governor Masaaki Shirakawa said the bank was implementing “strong monetary easing steps, such as its near-zero interest rate policy and asset purchases in order to overcome deflation.” Read more on the BOJ’s action.

“Banks are now starting to pick up gold, given the amount of monetary stimulus pumped in across various economies across the world,” said Michael Hewson, senior market analyst at CMC Markets. “They’re trying to mitigate currency exposure and currency depreciation.”

The ICE dollar index (NYE:DXY)  was at 83.352, up from 83.165 late Monday. Read more on currencies.

More bad news for raw-materials futures had come earlier.

China released data that showed import and export growth both slowed in June, while the Eurogroup put out a statement giving more details on plans to support Spain’s banking sector and allowing Spain more time to reduce its budget deficit via austerity measures.

Other metals ended lower, with silver the top loser.

The metal for September delivery (CNS:SIU2)  ended off 56 cents, or 2.1%, at $26.88 an ounce.

September copper (CNS:HGU2)  declined 3 cents, or 1%, to end at $3.40 a pound.

Platinum for October delivery (NYMEX:PLV2)  was off $16.20, or 1.1%, to settle at $1,429.70 an ounce, while sister metal palladium, for September delivery (NMN:PAU2) , retreated $7.30, or 1.3%, to $576.60 an ounce.