Gold Skeptics, Beware
By Nick Godt
Markets Reporter
2/7/2006 5:25 PM EST
Updated from 1:45 p.m. EST
A plunge in gold prices Tuesday had traders wondering whether a needed correction was already underway following the precious metal's surge since late last year.
Gold for April delivery plunged, losing $19.50, or 3.4%, to $554.80. That's more than 4%, below the 25-year highs of $580 touched last week.
The drop in prices was being attributed partly to the belief that tensions might ultimately be eased with Iran, 
...whose nuclear ambitions have sparked a standoff with the member countries of the United Nations Security Council. Chinese foreign minister Li Zhaoxing said China, a permanent member of the Security Council, hopes to resolve the issue through diplomacy.
According to analyst Chintan Karnani of Insignia Consultants, gold was also being hit by rising expectations that the Federal Reserve will lift interest rates for longer than previously thought this year, further reducing liquidity in financial markets. Last week, the Fed boosted the overnight bank lending rate for the 14th straight meeting, to 4.50%.
Likewise, speculation that the Bank of Japan might signal it is closer to ending its zero-policy towards interest rates when it meets on Thursday added to jitters about a reduction in global liquidity.
