PRECIOUS METALS: Gold Pulls Back From Record On Dollar Bounce

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NEW YORK (Dow Jones)--Gold futures backed down Thursday from records hit overnight, accelerating losses as the U.S. dollar bounced and extended gains.

Despite the losses, the metal may have even more downside due to the largely speculative--rather than physically driven--price increases in recent days.

Most-actively traded gold for December delivery fell $8 to settle at $1,106.60 an ounce on the New York Mercantile Exchange. Thinly traded nearby November gold also lost $8 to settle at $1,106.00. Overnight, the December contract hit $1,123.40, November reached $1,121.30 and spot metal hit $1,122.87.

Gold extended losses as "pile-on" selling weighed on the metal, said Michael Gross, broker and futures analyst with OptionSellers.com.

"We think the market is overextended here, and we are due for a bit of a correction," Gross said. Still, he added, "we don't see the long-term trend changing dramatically."

In recent trading, the ICE Futures U.S. Dollar Index was up 0.426 point at 75.588 points.

"The key now is likely to be if the [index] can hold the 75 level on the charts, potentially sparking a correction on gold and equities," said James Moore, analyst with TheBullionDesk.com. "Or if it fails and extends lower, we could easily see gold push on to new highs above the $1,150 level."

If the index gets above 75.80, gold may be headed back to the $1,100 level, said Patrick Donnelly, senior market strategist with Olympus Futures.

Investors often sell gold when the dollar rises and buy it when the greenback falls because the metal is considered a dollar hedge and, more broadly, an alternative currency.

Silver futures also settled lower as the dollar gained and U.S. stocks weakened. December silver fell 27.2 cents to settle at $17.265 an ounce. In recent trading, the Dow Jones Industrial Average was down 96 points at 10195.

"Silver's not quite as overbought as gold" but it has seen a lot of recent speculative demand and could be a bit overextended, Gross said. The metal could see a correction, especially if investors' focus turns back to industrial demand, "where the picture has been less than rosy of late," he said.

Meanwhile, platinum futures came under pressure from a rising dollar. Nymex January platinum fell $6.40 to settle at $1,363.20 an ounce while December palladium on the exchange gained $5.50 to settle at $350.90 an ounce after touching $359, a contract high.

Palladium managed a higher close in a somewhat delayed reaction to gold's overall strength, but the metal declined from its highs on dollar strength, a trader said. Most likely, the magnitude of the move in palladium is related to exchange-traded funds, the trader said.