* Dollar strength leads to heavy outflow in gold, commods
* Stop-loss orders triggered below chart support near $945
* Recent commods rallies outpace market fundamentals
(Recasts, updates with new quotes, closing prices, changes
dateline, pvs LONDON)
By Frank Tang
NEW YORK, June 12 (Reuters) - Gold futures broke below $940
an ounce on Friday, losing 2 percent on the back of a strong
dollar rally which prompted funds to switch money out of the
commodities sector and into other investments.
Recent currency fluctuations have led to large price swings
in bullion and other commodities this week, and gold could
still feel pressure if the dollar keeps rising, trader said.
Investors view gold as insurance against the falling value
of their dollar-denominated portfolios. The inverse
relationship between gold and the dollar broke down early this
year as both assets benefited from a flight to safety.
Miguel Perez-Santalla, vice president of sales at Heraeus
Precious Metals Management, said that gold and other
commodities markets such as oil have become over-extended after
recent strong rallies.
"The fundamentals don't support any of these movements.
It's just a matter of time until the money moves out of these
commodities and into better investments," Perez-Santalla said.
"If investors start regaining confidence in the stock
market, the metals will definitely come off," he said.
U.S. August futures <GCQ9> settled down $21.30, or 2.2
percent, at $940.70 an ounce on the COMEX division of the New
York Mercantile Exchange. Earlier in the session, August hit a
3-week low of $936.20, which marked the weakest price since May
20.
Spot gold <XAU=> traded at $941.85, down 1.3 percent from
its previous session, against $954.00 an ounce late in New York
on Thursday.
The dollar rose broadly, rebounding from a sell-off earlier
this week, because of weak euro-zone industrial production data
and a better-than-expected U.S. consumer sentiment report.
[]
"The fact that it has managed to fall out of the bottom of
that $940 to $980 range suggests there might be a bit more room
to push it on the downside," said Societe Generale analyst
David Wilson.
Wilson said that the metal was probably due for some
retracement after failing to pierce above the $1,000-mark last
week.
Crude oil took a breather to end about 1 percent down at
$72 per barrel, following solid gains earlier this week. Oil's
decline triggered across-the-board selling in commodities, with
the Reuters/Jefferies CRB index down about 1.5 percent. []
Gold has historically tracked oil prices, as it is often
bought as a hedge against inflationary pressures sparked by
higher crude.
Looking forward, investors awaited possible market-moving
news from a G8 finance ministers' meeting in Lecce, Italy, over
the weekend.
STATIC INVESTMENT FLOW
Demand for physical gold was weak. Holdings of the SPDR
Gold Trust, the world's largest bullion exchange-traded fund,
were static for a fourth session on Friday. []
Meanwhile gold buying in India, the world's biggest bullion
consumer last year, declined, with appetite for the precious
metal receding as the wedding season tails off. Earlier this
week, trade data showed India's gold imports fell sharply in
May.
Asset manager Fortis Investments told Reuters it favors
gold as a longer-term play on both inflation and deflation.
Gold is seen as an asset that holds its value in volatile
times. []
Among other precious metals, silver <XAG=> tracked gold
lower, falling to $14.85 an ounce against its previous finish
of $15.37. Platinum <XPT=> was at $1,251.50 an ounce compared
with $1,261, while palladium <XPD=> was at $250.50, down from
$254.00.
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCQ9> 940.70 -21.30 -2.2 884.30 6.4
US silver <SIN9> 14.875 -0.618 -4.0 11.295 31.7
US platinum <PLN9> 1258.70 -14.40 -1.1 941.50 33.7
US palladium <PAU9> 254.10 -1.90 -0.7 188.70 34.7
Prices at 2:14 p.m. EDT (1814 GMT)
Gold <XAU=> 938.40 -15.60 -1.6 878.200 6.9
Silver <XAG=> 14.85 -0.52 -3.4 11.30 31.4
Platinum <XPT=> 1251.50 -9.50 -0.8 924.50 35.4
Palladium <XPD=> 250.50 -3.50 -1.4 184.50 35.8
Gold Fix <XAUFIX=> 937.25 -10.25 -1.1 836.50 12.0
Silver Fix <XAGFIX=> 15.070 -0.020 -0.1 14.760 2.1
Platinum Fix <XPTFIX=> 1241.00 0.00 0.0 1529.00 -18.8
Palladium Fix <XPDFIX=> 252.50 0.00 0.0 365.00 -30.8
(Additional reporting by Kylie MacLellan and Jan Harvey;
Editing by Christian Wiessner)
