(Kitco News) - Gold futures retreated on profit taking Wednesday as equities and the U.S. dollar index strengthened.

Shortly before 1:30 p.m. EDT, Comex December gold was down $13.70, or 1.2%, to $1,124.60 an ounce. The contract bottomed at $1,116.90, its lowest level in a week.

September silver futures lost 57 cents, or 3.9%, to $14.04 an ounce. They slid as far as $13.91. Based on a futures continuation chart, this was the lowest level since August 2009.

“We had a sellers’ day in gold and silver,” said George Gero, precious-metals strategist with RBC Capital Markets Global Futures. “A lot of that had to do with continued strength in the stock market and the steadiness of the U.S. dollar.”

Against this backdrop, “anybody who had gains (in gold) the last couple of days took profits,” said Sean Lusk, co-director of commercial hedging with Walsh Trading.

The September dollar index was up 0.376 point to 94.92.  Investors often buy gold as sort of an alternative currency when the dollar sags, and vice-versa. Further, when the greenback rises, all commodities become more expensive in other currencies, which can hurt demand.

Meanwhile, the Dow Jones Industrial Average was up by around 277 points as a “risk-on” trade returned, taking away some of the safe-haven bid from gold, Lusk said. “That pushed gold back a little bit.” The yellow metal had benefited Friday and Monday when the Dow plunged with global stocks amid concerns about the health of the world’s second-largest economy in China.

Lusk also commented that traders may have taken some money off the table heading into Wednesday’s expiration in Comex September gold and silver options, as well as the annual end-of-summer Federal Reserve symposium in Wyoming, which starts Thursday. Additionally, Lusk added, there has not been a dramatic pickup in Chinese and Indian gold demand

Silver hit a multi-year low, versus a one-week low for gold, as the grey metal previously did not appear to draw as much of a boost as gold from safe-haven buying. Silver has heavier industrial applications, therefore is “more of an economic indicator than gold,” Gero said. Other industrial metals like copper have also hit six-week lows lately. Further, Gero added, silver tends to be more volatile than gold anyway.

Gold pulled back to roughly the 50% Fibonacci retracement of the rally from the recent low to the high, Lusk said. He commented that a pattern is continuing that has been in place for some time – rallies have become selling opportunities. Further, traders appear hesitant to add to long, or bullish, positions until there is more clarity in the market.

However, Lusk said, the retreat may well end up being a “buying opportunity” for those who think the Federal Open Market Committee will delay hiking U.S. interest rates.

At one time, many suspected the FOMC could tighten as early as a September meeting. But with global developments -- including sell-offs in stock markets around the world and uncertainty about the economy of China, which devalued its currency this month – Fed policy-makers’ “have their hands tied,” meaning no tightening for several months, Lusk said.

“Longer term, the Fed is not going to do anything. That is really going to impede the dollar’s progress here,” Lusk said. “We’ll see what they (Fed officials) say later in the week …. I would err to the long side here.”

On Wednesday, New York Fed President William Dudley said the case for a September rate hike “seems less compelling to me than it was a few weeks ago.” Dudley, who is seen as a close ally of Fed Chair Janet Yellen, cited the economic slowdown in China, weaker commodity prices and volatility in financial markets.

Gero characterized the interest-rate outlook as having a “lack of direction” from Fed officials, suggesting that policy-makers are perhaps still looking to hike this year, except maybe delaying until the October or December meetings instead of as early as September.

By Allen Sykora of Kitco News; asykora@kitco.com

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