US GOLD - Comex gold seen as top-heavy as record-breaking week comes to an end

New York 15/07/2011 - Gold on the Comex division of the New York Mercantile Exchange fell modestly on Friday, with the recent rally to fresh records highs prompting the sale of physical metal and general profit-taking.

Gold futures for August delivery were last down $3.30 at $1,586.00 per ounce and from Thursday’s all-time record high $1,594.90.

After the big run-up this week, gold is starting to feel a bit overcrowded, a US-based gold trader said.

“Case in point, my great aunt from Tennessee called me [on Thursday] morning to inform me that her church group was pooling some money together to buy gold coins and that if I were smart I would do the same,” the trader said.

“It's almost certainly a good time to sell off some positions the moment you start getting random trading advice from distant relatives whom you normally only see at family reunions,” he added.

Gold is also facing some headwinds from the physical market due to the higher prices, Standard Bank said in a note.

“Physical selling and scrap gold coming to the market has outpaced buying for the fourth day, pushing our Standard Bank Gold Physical Flow Index (GPFI) into negative territory for the first time since late-April,” it said, adding that physical selling is the strongest it has been in 13 months.

Additionally, Federal Reserve chief Ben Bernanke, in testimony before the Senate on Thursday, clarified earlier comments related to the possibility of a third phase of so-called quantitative easing (QE3).

He told the Senate sub-committee that additional accommodative policies might be considered at some point but that the Fed has no plans to change its policies in the immediate future.

Those comments were interpreted by the market to be less dovish than what he had said before the House on Wednesday.

“This has dented expectations of QE3, thereby reducing appetite for precious metals from a liquidity perspective,” Standard Bank said.

Having hit fresh lifetime highs this week, gold is now starting to look a bit top-heavy but remains supported on anxiety over European bank stress test results that are due out later today, RBC Capital Markets said in a note.

“As it's Friday and book-squaring is often the name of the game, we would not be surprised to a see a further pullback… those lucky enough to have gotten long early in the week will look to book profits,” it said.

In wider markets, the dollar was down against the euro at 1.4117, down about half a cent on the day.