Oil prices fell further on Tuesday as Iraq resumed exports and investors continued to take profits, leaving crude trading more than $7 below recent record highs.

A barrel of Nymex WTI for October delivery had fallen 16 cents to $42.12 by the close in New York. The contract fell 90 cents on Monday to its lowest since the end of July.

In London, where trading was closed on Monday for a public holiday, the October contract dropped $1.03 to $39.61 a barrel. Earlier in the session Brent crude touched $39.20, its lowest since July 30.

Prices have fallen sharply since the political situation in Iraq appeared to have improved last week when the fighting in the holy city of Najaf ended.

Meanwhile, repairs to pipelines following the latest sabotage attacks in southern Iraq increased daily output to 1.7m barrels, which is near full export capacity.

Also weighing on crude oil prices was news of the first shipment in three months of crude from the Kirkuk in northern Iraq to Turkey's Ceyhan export terminal. An Iraqi official said Baghdad hoped to sell up to 300,000 barrels a day of Kirkuk crude.

On Monday, Purnomo Yusgiantoro, Opec president, said the cartel aimed to increase spare capacity by about 1m b/d in the next few months. Opec is already seen as pumping 30m b/d, the highest level since 1979. The organisation is due to meet on September 15 in Vienna.

Weekly US government inventory data are due today, with heavy imports seen adding 1.2m barrels to crude stocks.

Gold prices extended their rise to reach $409.65 per troy ounce in late European trade. Bullion rose more than $5 in the US on Monday, driven by a stronger euro, which made dollar-denominated gold prices cheaper for European investors. In addition, safe-haven buying ahead of the presidential election played a part as the Republican party opened their convention in New York with security tight amid terror worries.

With a renewed focus on currency levels in the precious metals market, investors were eagerly awaiting August US employment data. The report, due on Friday, is seen as crucial in determining whether the Federal Reserve will raise interest rates in September.

Gold futures were also buoyed after Australian mining company Sons of Gwalia warned it faced bankruptcy because its hedging policy had backfired. The company entered voluntary financial administration after finding that its mines might not have enough gold to meet contracted forward sales. This would force it to buy gold in the market at a loss.

The price of silver followed gold higher, ending at $6.74/6.77 an ounce.

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