Gold had rallied 24 percent from a two-month low June 14 as oil surged to a record and Israel attacked Lebanon, targeting the terrorist group Hezbollah. Investors were concerned violence would spread in the Middle East, home to the world's largest oil exporters. So far, the conflict has been contained.
``A lot of people have got carried away on these political tensions,'' said Bernard Sin, chief trader at Geneva-based MKS Finance, one of Switzerland's four gold refiners. ``The market is really, really confused right now. It's very volatile and investors are reluctant to hold big positions.''
Gold futures for August delivery fell $10.30, or 1.6 percent, to $632.50 an ounce on the Comex division of the New York Mercantile Exchange. Prices are down 5.3 percent since July 14, which would be the first such decline in five weeks and the biggest since the week ended May 19.
Gold for immediate delivery fell $10.45, or 1.6 percent, to $632.30 an ounce at 7:10 p.m. in London. It has risen 49 percent in the past year.
``Most of the bad news from the Middle East is reflected in the price already,'' said Ross Norman, a director of TheBullionDesk.com. ``Gold has bounced back quite a lot since last month. It's had a good run.''
Volatile Markets
The gold market ``is seeing high degrees of volatility,'' Norman said. ``All the commodities are yo-yoing. It's reflecting continued uncertainty on where interest rates in the U.S. are going, as well as oil prices and the dollar.''
The dollar dropped for a second day against the euro on speculation minutes of the Federal Reserve's latest meeting will reinforce expectations that policy makers are almost done raising borrowing costs.
Ending the policy of raising borrowing costs may dull the appeal of U.S. assets compared with those of Europe and Japan, where central banks are lifting rates. The dollar yesterday fell the most in three weeks against the euro and dropped versus the yen after Fed Chairman Ben S. Bernanke, in testimony to Congress, signaled the Fed was wary of pushing rates too high.
Among other precious for immediate delivery in London, silver fell 10.5 cents, or 0.9 percent, to $11.035 an ounce, palladium fell $6, or 1.9 percent, to $307 an ounce, and platinum slid $8.25, or 0.7 percent, to $1,215.50 ounce.
