Gold fell to end at $1,408 on Tuesday after the outflow from the biggest gold exchange-traded fund (ETF) accelerated, investors shifted towards other assets like equities, and as a stronger dollar put pressure on prices.
The metal retreated from the previous session's one-week high as investors were nervous about holding onto positions for long, traders said. Gold bulls were caught out on Monday last week when gold made its biggest-ever daily loss in dollar terms.
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"What we saw in the past few sessions was a lot of physical buying in the form of coins and bars but the ETF numbers are heavily down and we don't necessarily see a resurgence in demand from the ETF side any time soon," SP Angel analyst Carole Ferguson said.
Gold dropped to a session low of $1,406.23 an ounce and was last seen at $1,413 per ounce, still down 0.8 percent. Gold has dropped around 15 percent this year.
U.S. gold futures settled $12.40 per ounce lower to $1,408.80.
The metal was also under pressure from a strong dollar and rebounding equity markets after sales of new U.S. single-family homes rose in March, indicating the housing market recovery remains on track.
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In other markets, copper fell to an 18-month low and crude oil was down nearly 1 percent as data revealed a slowdown in business activity in Germany and China in April. The figures heightened concerns over global growth.
"Gold is lower as well as other commodities including crude oil and base metals, which fell after weaker-than-expected economic data out of China and Europe, which gave a boost to the dollar," Commerzbank analyst Carsten Fritsch said.
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Traders were also pointing at pressure from a shift in asset allocation, while Goldman Sachs said it expected further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane.
SPDR Holdings at 3-1/2 Year Low
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, tumbled 1.6 percent to the lowest level since November 2009 at 35.51 million ounces. That followed daily falls of less than 1 percent in the past week.
While some physical buyers have been seeking bargains at gold's lower prices, investors are cutting exposure due to worries about central bank gold sales and prospects of an end to inflationary monetary policy.
The metal came under pressure earlier this month after the European Central Bank (ECB) and International Monetary Fund asked Cyprus to sell reserves to raise around 400 million euros ($523 million) as part of a bailout deal, leading to speculation other indebted euro zone countries could follow suit.
Cypriot Finance Minister Harris Georgiades has said, however, that the government was not giving priority to the sale.
Physical buying persisted in Asia, even though spot gold has rebounded more than $100 from last week's lows of $1,321.35. Premiums for gold bars were at multi-month highs in Singapore and Hong Kong as supply tightened for coins and other products.
"The strong response from physical markets is a significant component impacting sentiment as well as an important reminder that this demand can offer support during times of weakness," UBS analyst Joni Teves said. "Nevertheless, it will take time for the market to fully heal and for conviction to be regained."
India, the world's largest gold consumer, next month celebrates Akshaya Tritiya, a key gold-buying festival, while the wedding season continues until early June. Indian parents give gold jewellery to their daughters at weddings.