JULY 27, 2010, 2:38 P.M. ET.

PRECIOUS METALS: Gold Dives, Focus On Sentiment, Outflows

By Matt Whittaker and Matt Day Of DOW JONES NEWSWIRES NEW YORK

Gold futures dove to three-month lows, as relative calm across financial markets focused attention on recent outflows from the yellow metal.

"It seems asset markets are stabilizing," said Michael Gross, broker and analyst with OptionSellers.com in Tampa, Fla. "That money that moved to gold for shelter" is flowing back into markets perceived as riskier.

Gold futures for August delivery settled down $25.10, or 2.1%, at $1,158 on the Comex division of the New York Mercantile Exchange, the lowest settlement price since April 26. The move came after data showed home prices rose in May from a year ago, beating analyst expectations.

U.S. home prices fell steeply during 2008 financial crisis and subsequent global recession. While the second consecutive monthly rise in May is unlikely to signal a sustained recovery for the sector, it is enough to calm fears that economic conditions would deteriorate further.

U.S. equities have stabilized recently as the economic outlook improved, leading many to liquidate holdings in gold in favor of riskier assets. Worries about European sovereign debt and a potential double-dip recession had shaken investor confidence in equities in May and June.

The focus for much of this year has been Europe's debt problems. Panic and uncertainty about the ability of some European nations to manage their debt loads sent gold to an all-time high above $1,260 an ounce about a month ago. Those fears have been calming in recent weeks, however, with the stress tests on European banks providing the latest evidence of renewed confidence in European markets.

"The general mood is pushing prices down," said Daniel Briesemann, an analyst with Commerzbank.

That has been evident in gold holdings, with investors selling out of the largest fund backed by the actual metal, SPDR Gold Shares, which is managed by a subsidiary of the World Gold Council. Holdings in SPDR Gold Shares have dropped 1.4%, from a record 1,320.44 metric tons at the end of June to 1,301.74 tons on Monday, worth $49.5 billion based on that day's prices.

Over the same period, the number of outstanding futures contracts on the Comex have fallen almost 8%. "The investment community is trying to get a feel for where to go from here," said Dan Cook, Chicago-based senior market analyst with brokerage firm IG Markets.

This is a far cry from the frenzy of gold buying witnessed in the second quarter. According to new figures from the World Gold Council released Tuesday, investors bought 273.8 metric tons of gold via exchange-traded funds during the second quarter. This was the second-largest quarterly inflow on record and brought the total amount of gold managed by these ETFs to more than 2,000 tons, worth $81.6 billion.

Physically backed gold ETFs are traded on exchanges in similar fashion to stocks or mutual funds, but the share prices are tied to the price of gold, and shares are backed by physical bullion stored in vaults.

"The overriding picture emerging in the gold market is one that points toward ebbing investment demand," Jon Nadler, a senior analyst at Kitco Metals Inc., wrote in a research note.

In addition to stability in Europe, Nadler gave the world's central bankers, themselves gold purchasers, credit for moderating gold demand. It was their "apparent refusal" to allow the global economy to "careen out of control in either extreme direction that typical gold buyers normally expect: hyperinflation or deep depression."

September silver fell 57.4 cents, or 3.2%, to settle at $17.626 an ounce.

Nymex October platinum fell $19.10, or 1.2%, to $1,536.70 an ounce. Palladium for September delivery fell $8.45, or 1.8%, to $466.55 an ounce.

Settlements (ranges include open-outcry and electronic trading): London PM Gold Fix: $1,168.00; previous PM $1,183.50 Aug gold $1,158.00, down $25.10; Range $1,156.90-$1,186.50 Sep silver $17.626, down 57.4 cents; Range $17.580-$18.235 Oct platinum $1,536.70, down $19.10; Range $1,534.00-$1,565.90 Sep palladium $466.55, down $8.45; Range $465.90-$481.50 -By Matt Whittaker, Dow Jones Newswires; 212-416-2139; matt.whittaker@dowjones.com

(Rhiannon Hoyle in London contributed to this article.)

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