Gold rises after huge pullback


MAY. 16 3:23 P.M. ET Gold prices rose Tuesday, recovering from a big drop a day earlier as the dollar weakened against the euro.

June gold rose $7.90 to settle at $692.90 an ounce Tuesday on the New York Mercantile Exchange. Gold had fallen about 4 percent on Monday.

The dollar fell after the release of weak U.S. economic data Tuesday, with the euro rising as high as $1.2868. Gold is typically seen as a safe-haven, alternative investment to the U.S. currency.

Dave Meger of Alaron Trading said that not only is gold reacting to the dollar, but the yellow metal also has entered a period of consolidation since breaching the $700 an ounce level last week. On Thursday, it hit a 26-year high above $730 an ounce.

"There have been traders looking to sell into rallies and then buy on the dips," said Meger of the choppy trading conditions in gold.

Others have said the recent pullback in price attracted a good degree of traditional physical demand from India, Hong Kong and Dubai.

"That type of physical demand is underpinning the market, and now we are also seeing bargain-hunter buying," said Bernard Hunter of Scotia Mocatta.

A 7.4 percent fall in U.S. housing starts during April contributed to the idea that the Federal Reserve may pause in its monetary tightening, said Frank Lesh of Future Path Trading. Annualized starts were 1.849 million, below the consensus forecast of 1.95 million.

The Producer Price Index was mixed relative to expectations. Overall PPI was up 0.9 percent in April, compared to a 0.8 percent forecast. But core PPI, excluding food and energy, was down 0.1 percent, compared to a 0.2 percent consensus expectation.

Analysts at Barclays Capital in London said that even though gold and silver are higher on the day, further near-term weakness is possible given the large speculative length. On a technical basis, the analysts said, there is little that suggests the trend is actually over.

Looking ahead to the rest of the week, Lesh said the market will get an even more important inflation report Wednesday when the government releases the Consumer Price Index.

July silver rose 20.5 cents to settle at at $13.54 an ounce, after falling as low as $13.15 an ounce.