SINGAPORE: Gold extended losses on Thursday after the previous session's volatile trade, with a slow physical sector suggesting that jewellers and investors were waiting for prices to drop further from four-month highs.
Gold has risen more than 10 percent so far this year on uncertainty over the pace of the US economic recovery, worries about growth in China and renewed interest in bullion-backed exchange traded funds.
But some analysts said it will be hard for gold to sustain the gains, which have been driven by short covering and not physical buying. Current prices are about 30 percent below an all-time high of $1,920.30 hit in 2011.
Gold fell 0.26 percent to $1,327.30 an ounce by 0321 GMT. On Wednesday, it hit a four-month high at $1,345.35 before falling almost 1 percent on a dollar rally and surging US home sales.
"Our view is still for gold to move lower over the medium term. We expect the gold price to trade down to $900-1,000 over the medium-term," said Mark Keenan, head of Commodities Research - Asia at Societe Generale in Singapore.
"The key fundamentals driving the gold price such as the benign US inflation outlook, the US monetary policy stance and the US bond yields are all likely to continue to exert significant pressure on the gold prices going forward."
US gold was at little changed at $1,327.30 an ounce.
In the physical market, premiums for gold bars in Singapore slipped to as low as 80 cents to the spot London prices from a high of $1.50 last week after a recent increase in prices spurred sales of scraps.
Premiums in Hong Kong were unchanged at $1.30 to $1.70 but could fall as weakening differentials between 99.99 percent purity gold on the Shanghai Gold Exchange and cash gold discouraged imports.
"I think some people still can't comprehend why prices have gone up despite a lack of buying on the physical side," said a dealer in Singapore.
"We are quoting premiums at 80 cents to $1 now because the market is flooded with supply, given the low demand."
In Tokyo, gold bars were offered at discounts of 25 cents to the spot London prices from zero last week after rallies in yen-denominated gold contracts on Tokyo Commodity Exchange spurred selling from speculators.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD, increased 0.26 percent on Tuesday from Monday.
In other markets, Asian shares struggled to find a solid footing on Thursday as escalating tensions in Ukraine sent investors scurrying to the safety of the dollar and US Treasuries.
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