Gold prices reversed early losses on Thursday after the U.S. dollar weakened,but remained under pressure as holdings in exchange-traded funds tumbled to their lowest in four years.
Rallying stocks also hurt bullion’s appeal as an alternative investment,although tight physical supply in the world’s largest consumer India could offer some support.
Gold was up 0.24 percent at $1,395.61 by 0312 GMT,having slipped to a near 1-month low at $1,386.89 in volatile trade. Prices have fallen more than 16 percent this year and are well below a record high of around $1,920 struck in September 2011.
“The recent stronger profile of the U.S. dollar has undermined some of the financial investments side of buying gold,” said Tim Riddell,head of ANZ Global Markets Research,Asia. A stronger greenback makes dollar-denominated commodities more expensive for holders of other currencies.
Bullion fell for a fifth straight session on Wednesday in its longest daily losing streak since January 2011 as the S&P 500 hit a new all-time high.
U.S. gold for June delivery stood at $1,394.20,down 2.00.
A drop in ETF holdings indicates that investors are shifting to equities from gold. Holdings in SPDR Gold Trust,the world’s largest gold-backed ETF,fell 0.43 percent to 1047.14 tonnes on Wednesday,their lowest since March 2009.
Financial markets are buzzing with speculation that the U.S. Federal Reserve will begin winding down its asset-purchasing programme,which is tantamount to printing money.
Bullion hit an 11-month high in October last year after the Fed announced its third round of aggressive economic stimulus,raising fears the central bank’s money-printing to buy assets would stoke inflation.
“Markets will continue to move lower,” said Peter Fung,head of dealing at Wing Fung Precious Metals in Hong Kong,adding that gold prices could slip to around $1,380 an ounce.
Gold sales in India could increase due to the lower prices,but recent import curbs by the central bank could keep buying in check,Fung said.
Premiums for physical gold in India have jumped sharply this week due to limited supply after the central bank restricted imports to rein in a record current account deficit.
In other parts of Asia,dealers noted strong demand from No.2 consumer China as high domestic prices prompted consumers to buy gold bars from Hong Kong.