Gold extended losses on Tuesday, after posting its biggest daily percentage fall in three weeks the previous day because of profit taking, but record exchange traded fund holdings still boosted sentiment.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings rose 9.78 tonnes to a new record of 853.37 tonnes of gold as of February 2 -- an increase of more 9 percent in the past month.
Gold was trading at $901.40 an ounce, down $1.75 from New York's notional close on Monday, when it dropped more than 2 percent in selling also driven by weak demand from the jewellery sector. Gold hit a near four-month high of $930.40 on Friday.
At current levels, some of the fabrication demand for gold might fall away and you might also get some selling of gold, said David Moore, commodities strategist at Commonwealth Bank of Australia in Sydney.
My expectation is that gold would trade in a fairly broad band but around about the sort of current levels. Sentiment towards gold is relatively positive at the moment. I suppose the international economic problems are creating interest in gold as a sort of diversification for investors.
For details of gold holdings by the ETF listed in New York, click on:
Gold has bounced more than 30 percent since tumbling to a 13-month low of around $680 in late October, aided by a recovery in oil prices, technical buying and investors looking for a safe place to park their assets away from the volatile equity markets.
But high prices also scared off buyers from the jewellery sector, which accounts for almost 70 percent of global demand for gold. Gold was about 12 percent below a lifetime high of $1,030.80 struck last March.
India gold futures could hit new highs this week on expectations of a recovery in crude oil and a weaker rupee but weak physical off-take in the domestic markets could limit the upside. India is the world's largest consumer.
The volume of gold jewellery sales in Abu Dhabi fell 70 percent in January due to rising prices.
Basically, there's not much interest from the jewellery sector and there's profit taking as well as light selling in Asia, said a dealer in Hong Kong.
But we can still bargain hunting at lower levels. That's why we also see a rebound, which is driven by bargain hunters, said the dealer, referring to a drop to an intraday low of $895.60 an ounce.
In other markets, the Nikkei edged up 0.6 percent on bargain hunting. Oil was steady above $40 a barrel after falling nearly 4 percent the previous session as U.S. data ignited concerns over the economy and demand in the United States.
The euro edged down to $1.2837 on Tuesday, having gained on expectations the European Central Bank will keep interest rates steady later this week and maintain the currency's yield appeal.
Worries about the global economy persisted after data showed U.S. consumption, which accounts for two-thirds of the country's economy, fell for a sixth straight month in December. A separate report pointed to continued weakness in U.S. factory activity in January. .
New York gold futures fell $3.4 to $903.8 an ounce in electronic trade.
Platinum was trading at $967 an ounce, down $3 from New York's notional close.
© Thomson Reuters 2008. All rights reserved.