Gold falters as safe-haven rally fizzles

Gold fell on Monday following its biggest one-day gain of the year so far as equities steadied after Friday's losses and US consumer spending data for December beat expectations. The market was still encountering some safe-haven buying on the back of the protests in Egypt, but this was expected to be temporary, analysts said.
Gold is set for its worst monthly performance since December 2009, driven down by the improving tone of some key US economic data, growing investor confidence and a near-record decline in holdings of metal in exchange-traded funds. Even a fall in the dollar index has not lifted gold this month, as the traditional negative correlation between the two has reached its most positive since mid-September.
Spot gold fell as low as $1,322.90 an ounce and was bid at $1,328.25 at 1511 GMT, against $1,338.30 late in New York on Friday. US gold futures for April delivery fell $12.70 to $1,329.00 an ounce. US stocks opened higher on Monday as merger activity and solid earnings, including Exxon Mobil, overshadowed concerns about unrest in Egypt spreading in the Middle East. European shares cut early losses to steady.
"Once that is over, we will be back into normal circumstances, and then we should see a rally up in gold. For the time being, I would say $1,300-1,350 (is the range). If we get below $1,300, it could get a little bit ugly." Gold has come under pressure this month from a raft of more positive US economic data, which has lifted appetite for assets seen as higher risk, such as stocks.
The dollar meanwhile fell around 0.65 percent versus the euro, after a jump in euro zone inflation data lifted the single currency and bolstered the view that interest rates in the region could rise more quickly than in the United States. The prospect of higher interest rates may hurt gold, analysts said, as the opportunity cost of holding non-interest bearing assets goes up as rates increase.
Scenes in Egypt, where protesters intensified their campaign to force President Hosni Mubarak to quit, have encouraged some safe-haven buying of gold, although this support is unlikely to last long, analysts said. "What we've seen is (Egypt) has limited the downside more than anything," said VTB Capital analyst Andrey Kryuchenkov. "Technically, it's still weak, also I think the investment community realises Egypt is probably a temporary thing."
On the physical market, premiums for gold bars were at their strongest since at least 2004 on tight supply and short covering before the festive season in India and China, as well as physical buying driven by the deadly protests in Egypt. But the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings slipped to an eight-month low of 1,224.118 tonnes, reflecting the decline in investor desire for bullion.
Holdings of metal in the trust are set for their second-largest monthly decline since the fund's inception in late 2004, while open interest in COMEX gold futures staged its largest weekly fall since at least 1996, according to last week's Commitment of Traders data. Silver was up 0.6 percent at $28.07, having risen earlier to a one-week high at $28.31. Platinum was last down nearly 0.7 percent on the day at $1,779.50 an ounce, while palladium was down 0.6 percent at $808.22.