* Silver futures volume reaches all-time high
* Increase in silver future margins sparks profit taking
* Euro zone debt back in focus, G20 uncertainty cited
* Coming up: G20 meeting begins Wednesday
(Recasts, updates prices, market activity)
By Frank Tang
NEW YORK, Nov 9 (Reuters) - Gold's rise to a fourth
consecutive record high unraveled late on Tuesday as the dollar
strengthened and an increase in silver futures margins sparked
a wave of profit-taking in precious metals.
Gold futures hit a record in early trading on safe-haven
buying fueled in part by concerns about Irish and Portuguese
debt. But gold reversed course in the U.S. afternoon. It
managed to settle higher, but in electronic trade after the
settlement, gold fell back below $1,400, down more than 1
percent from Monday's close.
Precious metals had made substantial gains since the
Federal Reserve announced more easing last week. Some analysts
said it was vulnerable to a sell-off, some analysts said.
Silver reversed from a 30-year high in record high trading
volume, falling in tandem with oil and grains.
Silver exchange-traded fund trading volumes reached 10
times the average (Graphic: http://link.reuters.com/fef64q )
Shares of the iShares Silver Trust, an exchange-traded fund
that tracks the price of silver, fell 3.6 percent on massive
volume as more than 150 million shares changed hands, nearly 10
times the average daily volume over the last 50 days.
Many in the market appeared confused by mid-session gains
in the U.S. dollar index <.DXY>, which was up 0.9 percent at
5:04 p.m. Unable to discsern a clear reason for the dollar's
rise, dealers began to look closer at COMEX silver, where
preliminary trading volume was over four times its average.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Greek, Irish bond yield spread http://r.reuters.com/tuk54q
G20 battle lines: http://r.reuters.com/jux34q
Basel III; rule reshaping: http://r.reuters.com/zys68p
Gold price performance: http://link.reuters.com/juz44q
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Some traders said a rise in margins to $6,500 a contract
from $5,000 had aided the sell-off in a market that was due for
a correction after outperforming gold in the past few months.
"The sell-off started because the market had gone too far
too fast," said Frank McGhee, head precious metals trader with
Integrated Brokerage Services LLC in Chicago. "The margin
change added insult to injury," he added, but said it was not
the primary factor driving the after-hours sell-off.
Gold had earlier risen in tandem with the dollar for a
second straight day, as investors poured into both the metal
and the U.S. currency as safe havens. Analysts said gold's
unusual positive link with the greenback was similar to what
happened earlier this year amid eurozone sovereign debt fears.
The euro <EUR=> struggled for a third straight session as
investors worried about Irish and Portuguese debt and hedged
sizable bets against the U.S. dollar. []
Worries about inflation surfaced last week when the Fed set
its latest bond-buying program. This initially weakened the
dollar and powered commodity prices higher. Gold has gained
nearly 30 percent this year so far and has risen as much as 8
percent since just before the Federal Reserve detailed its
plans last Wednesday to buy $600 billion worth of Treasuries to
revive the economy.
U.S. gold futures for December delivery <GCZ0> settled up
$6.90, or almost 0.5 percent, prior to the day's reversal.
Spot gold <XAU=> scaled a record at $1,424.02 an ounce, but
then fell by 1.7 percent to $1,386 in late New York trade.
Gold had gained a lot due to the Fed's government bond
buying program and was overbought, said Peter Buchanan, senior
economist with CIBC World Markets in Toronto. A firming dollar
and equities selloff also weighed on gold in late trade, he
said.
Gold, a classic hedge against inflation, often gains when
the dollar weakens and comes under pressure when the U.S.
currency firms.
Spot silver <XAG=> surged as much as 6 percent to a 30-year
high of $29.33, but later fell by more than 3 percent to $26.80
in exceptionally volatile trade even by silver market
standards.
COMEX silver futures volume was above 191,000 lots,
preliminary Reuters data showed, breaking the previous record
of 127,890 lots set in 1976. The benchmark December contract
<SIZ0> settled up $1.474 at $28.906 an ounce.
The premium that investors are demanding to hold Irish and
Portuguese government debt shot to record highs on concern
about funding and potential default. This prompted European
investors to seek a safe-haven investment such as gold.
[] []
Also on the radar is this week's G20 summit. Officials from
Germany, Brazil, China and South Africa are among those
expressing concern that the Fed's policy could weaken the
dollar and drive up commodity prices. []
Prices at 5:03 p.m. EDT (2203 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1410.10 6.90 0.5% 28.6%
US silver <SIU0> 28.906 1.474 0.1% 71.6%
#VALUE!
US palladium <PAU0> 742.65 31.75 4.5% 81.6%
Gold <XAU=> 1392.35 0.36 0.0% 27.0%
Silver <XAG=> 26.87 -0.01 0.0% 59.6%
Platinum <XPT=> 1757.50 0.01 0.0% 19.9%
Palladium <XPD=> 690.22 0.00 0.0% 70.2%
Gold Fix <XAUFIX=> 1421.00 4.75 0.3% 28.7%
Silver Fix <XAGFIX=> 28.55 183.00 6.8% 68.0%
Platinum Fix <XPTFIX=> 1786.00 6.00 0.3% 21.8%
Palladium Fix <XPDFIX=> 730.00 9.00 1.2% 81.6%
(Additional reporting by Barani Krishnan, Josh Schneyer, David
Gaffen and John Parry in New York and Amanda Cooper and Pratima
Desai in London; Editing by David Gregorio)
