NEW YORK, July 21 (Reuters) - COMEX gold futures grasped at the pivotal $400 an ounce mark Wednesday morning after declining overnight, as the dollar gained against the euro on a report that Iraqi security had found a nuclear missile cache in Iraq, trading sources said.
Silver prices crumbled lower in pursuit of gold, and platinum and palladium also slipped.
By 10:18 a.m. EDT (1418 GMT), August gold on the New York Mercantile Exchanges COMEX division was down $3.50 at $398.60 an ounce, in trade from $402.40 to $397.60, its lowest level since July 7. Estimated gold turnover was 22,000 contracts at 10:00 a.m.
Prices stayed on the defensive as the dollar spurted higher after news that Iraqi security reportedly found missiles carrying nuclear warheads.
The report by United Press International was dismissed as "stupid" by Iraqs Interior Ministry. The U.S. military said it had no information on the report.
"(Gold prices) were certainly responding to the dollar strength, although the euro just bounced and the we bounced," said James Pogoda, vice president of precious metals at Mitsubishi International Corp. "Golds very closely fading the dollar moves and tracking the euro."
Dollar strength usually crimps demand for dollar-denominated gold from non-U.S. buyers.
The euro on Wednesday briefly slipped to session lows against the dollar at $1.2266 before trading back up around $1.2290.
"Its been tight and very choppy, bouncing around," said one gold floor broker. "The report of the nukes helped it out and got it back to $400, and we are still trading around that area." He said light fund liquidation was the main feature.
Dealers peg support in August futures at $397.60 and resistance at $402-$402.50, and then at $405 and $406.
After Tuesdays close, gold sank under $400 as the dollar strengthened after Federal Reserve chief Alan Greenspans comments to Congress on Tuesday supported expectations for a series of interest rate hikes in the months ahead.
On Wednesday, Greenspans testimony to the House of Representatives panel appeared identical to Tuesdays testimony.
Gold traders have been scrutinizing the language in the Fed Chairmans commentary on monetary policy as any aggressive rate hikes would tend to raise demand for the dollar and pressure gold.
Spot gold last was worth $398.30/8.80, down from the last New York close around $401.00/1.75. Wednesdays early fix in London was at $401.10.
COMEX September silver tumbled 16.2 cents to reach $6.45 an ounce, in a range of $6.615 to $6.42, and touching its lowest mark since July 14. Spot silver hit $6.46/49, versus Tuesdays close in New York at $6.57/60. Wednesdays London fix was at $6.47.
NYMEX October platinum slipped $3.30 to $830 an ounce. Spot platinum traded to $829.00/834.00 an ounce.
September palladium fell $2.85 to $229 an ounce. Spot palladium was at $225.00/230.00 an ounce.