SINGAPORE: Spot gold lost half a percent on Wednesday, shedding the previous session's strong gains on encouraging economic data from the United States and Europe, although the fall may be capped by rising concerns on Iran.
Bullion began the year by recouping all of last week's losses to post its largest daily rise since Oct. 25 and analysts say gold may benefit from its safe haven appeal despite concerns about the euro zone debt crisis.
"Gold may not be a safe haven in financial turmoil, but it does seem to function as a safe haven against real-world geopolitical risks," said Nick Trevethan, Senior Commodity Strategist at ANZ.
Spot gold lost nearly half percent to $1,594.59 an ounce by 0328 GMT, after rising 2.4 percent in the previous session.
US gold edged down 0.2 percent to $1,596.60.
Technical analysis suggested spot gold could rise to $1,629 during the day, said Reuters market analyst Wang Tao.
Gold has moved in line with the euro which edged lower after rallying on Tuesday together with commodities and equities, buoyed by stronger-than-expected US manufacturing data and two-decade-low unemployment in Germany.
Asia's bullion market remained lukewarm, while physical supply remained tight as refineries are just restarting operations after the holidays.
"Physical supply is expected to improve next week," said a Singapore-based dealer, adding that Asian buyers will be searching for kilo bars to meet demand ahead of the Lunar New Year.
Premiums on gold bars in Singapore were quoted in the range of $1.30 to $2 an ounce above spot prices, dealers said.
Despite a 10-percent drop in gold prices in December, spot gold still scored a 10-percent rally in 2011, its 11th straight year of growth, with help from surging investment demand from individuals and rising central bank purchases.
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