Gold struggles near 8-1/2-month lows on fund outflows

SINGAPORE: Gold ticked up on Tuesday but was stuck near its lowest in almost nine months, hurt by outflows from the top bullion backed exchange-traded fund as investors adjust positions on concerns of higher US interest rates and strength in the dollar.

Investors pulled out of SPDR Gold Trust, the top gold-backed exchange-traded fund, for a second day in a row, with the fund's holdings falling to 774.65 tonnes on Monday - its lowest since December 2008.

The fund is a good representation of investor sentiment due to the size of its holdings.

Spot gold edged up 0.3 percent to $1,218.30 an ounce by 0215 GMT after dropping for two straight days.

The precious metal could be seeing some safe-haven buying as the United States said it was carrying out the first air strikes against Islamic State targets in Syria, in ongoing operations that mark the opening of a new, far more complicated front in battle against the militants.

But despite the slight gain, spot prices remained near an 8-1/2 month low of $1,208.36 reached in the previous session.

Silver ticked up slightly to $17.74, though still close to a four-year low of $17.30 hit on Monday.

Funds run by ETF Securities also saw outflows from precious metals last week due to diminishing global risks and dollar strength, said Danny Laidler, head of the firm's Australia & New Zealand operations.

"Precious metals saw the largest outflows in over a year, with silver and both long and short gold exchange-traded products seeing outflows," said Laidler, adding that $263 million was pulled out of precious metals funds last week.

"We view the current gold price as a very attractive entry point for longer-term investors."

Bullion's appeal has been hurt as the dollar hovers nears a four-year high against a basket of major currencies as speculation mounts that the US Federal Reserve would increase interest rates sooner than expected.

Higher interest rates would hurt gold, a non-interest bearing asset.

Traders believe gold could extend the slide to below $1,200 and possibly to 2013 lows of $1,180, as there is little support from technicals and physical buying.

"The strength of the dollar continues to put pressure on all precious metals, with gold looking likely to make a play for $1,200 in the coming sessions," MKS Group said in a note.