* Dollar rally, oil losses prompt profit taking in gold
* Bernanke's warning on US debt undercuts inflation appeal
* Gold faces tough resistance ahead of $1,000/oz barrier
(Recasts, updates with quotes, closing prices, market
activity, changes dateline, pvs LONDON)
By Frank Tang
NEW YORK, June 3 (Reuters) - Gold futures ended about 2
percent lower on Wednesday, posting their biggest one-day
percentage drop in almost two months as a dollar rally and
tumbling oil triggered heavy profit taking.
A broad-based commodities retreat led by heavy losses in
oil prompted bullion investors to take profits as the dollar
rebounded sharply amid weaker U.S. economic indicators and
steep losses on Wall Street.
Analysts said that the inverse relationship between gold
and the dollar seemed to be reasserting itself. Earlier this
year, the traditional link broke down because both assets
benefited from a flight to safety amid economic fears.
U.S. August futures <GCQ9> settled down $18.80, or 1.9
percent, at $965.60 an ounce on the COMEX division of the New
York Mercantile Exchange. Wednesday's drop marked the biggest
one-day percentage fall for the August contract since April 6.
Spot gold <XAU=> traded at $961.95 at 2:30 p.m. EDT (1730
GMT), sharply lower than the $980.85 an ounce late in New York
on Tuesday.
James Steel, chief commodities analyst at HSBC, said that
Federal Reserve Chairman Ben Bernanke's warning on corralling
U.S. debt reassured that the government was wary of increasing
borrowings, and that undercut gold's appeal as a hedge against
inflation. []
The dollar posted sharp gains as a weaker-than-expected
U.S. ADP private-sector job report reminded investors that the
road to recovery may not be as smooth as many initially
thought. []
That rekindled demand for the greenback, with comments from
Asian officials that Asia would keep buying U.S. Treasuries
even if the U.S. credit rating were to be cut also boosting the
currency. []
TOUGH RESISTANCE
Commerzbank trader Rory McVeigh said the precious metal was
likely to encounter heavy resistance on its way up to the key
$1,000-an-ounce mark. Gold's record high lies just above that
level at $1,030.80.
HSBC's Steel also noted that the gold market has approached
the $1,000-level several times in the last two years, and each
time it has corrected sharply following a rally.
"The market has become overbought. We may have to correct a
little further," Steel said.
In mining news, South Africa's gold producers on Wednesday
improved their wage offer to workers to 6 percent as pay talks
entered the second of five rounds, but unions rejected the
proposed increase and threatened to strike. []
Silver <XAG=> was at $15.26 an ounce, down more than 4
percent from its previous finish of $15.94. The world's largest
silver exchange-traded fund, the iShares Silver Trust <SLV>,
said its holdings dipped by 3.11 tonnes on Tuesday but remain
near record levels. []
Spot platinum <XPT=> was at $1,235.00 an ounce, against
$1,238.50 late in New York on Tuesday, while spot palladium
<XPD=> was at $240.50 against $246.50.
Both remained depressed by the lackluster outlook for the
car industry, consumer of around half global supply of the
metals.
Data released on Tuesday showed U.S. auto sales fell nearly
34 percent in May from a year earlier, but aggressive
discounting helped steady results. []
Analysts said that even a mild upturn in auto demand should
help support platinum group metals prices.
(Additional reporting by Jan Harvey and Pratima Desai; Editing
by Christian Wiessner)
