Gold loses some shine on good US news

Investors desperate for news indicating the US economic recovery might be on track after all, and received it overnight as a report on durable goods orders surpassed expectations.

Durable goods orders increased in July by the most in four months, up 4 per cent or double economists' expectations and a much-welcomed positive note after the recent flurry of discouraging statistics on the world's largest economy.

In late trading, the Dow Jones industrial average rose 0.47 per cent and the Standard & Poor's 500 Index gained 0.44 per cent. The Nasdaq Composite Index was steady.

"Any time you see life in the walking dead, it certainly makes you feel a lot better," Bruce McCain, who helps oversee US$22 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland, told Bloomberg News

"There's so much pessimism priced into the market that if we get any decent news, it's going to buoy investors' spirits. If investors can be reassured that a disaster is not imminent, that's good for the market."

While good news for the economy, the latest data is tempering expectations that Fed chairman Ben Bernanke will have much to say when he speaks on Friday.

"Going into Bernanke's speech at Jackson Hole, people are positioned for a significant shift in policy. [But] we think financial market conditions have to deteriorate even further for more QE3," Simon Derrick, head of currency research at Bank of New York Mellon, told Reuters.

In a big reversal from the trend in recent weeks that has boosted gold to record highs, the precious metal dropped today as the demand for the perceived safe-haven diminished.

Gold futures for December delivery shed 3.9 per cent to US$1,789 an ounce at 12.11pm on the Comex in New York. A close at that level would be the biggest loss since February 4, 2010, according to Bloomberg News.

"You have a commodity that retail investors, hedge funds and everybody were long, and the technical indicators showed it was overbought. It was just a matter of time before the market starts cracking," Mihir Dange, COMEX gold options floor trader for Arbitrage LLC, told Reuters.

US Treasuries fell as the government sold US$35 billion in five-year notes at a record low auction yield. It was the second of three note auctions this week totalling US$99 billion.

The securities drew a yield of 1.029 per cent, less than the previous record low auction yield of 1.260 per cent in September 2010, according to Bloomberg News.

There are expectations that Bernanke will signal a plan for the Fed to extend the maturity of its portfolio by buying more longer-dated securities with proceeds from maturing ones.

Such expectations helped the US dollar advance against a baskets of major currencies, up 0.18 per cent.

Across the Atlantic, the Stoxx Europe 600 Index ended the day with a 1.4 per cent gain.