Gold edged up on Monday, extending gains seen in the previous session as buying continued on fears the unrest in Egypt will spread across the Middle East, but selling in the physical side and a drop in ETF holdings to an eight-month low capped gains.
Silver was at a one-week high, tracking gold which notched up its biggest gain in eight weeks on Friday. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings slipped to 1,224.118 tonnes by Jan. 28, its lowest since May of last year.
Spot gold rose $1.10 to $1,339.40 an ounce by 0321. Gold dropped to as low as $1,308 on Friday, its weakest since early October 2010, before reversing losses on safe haven buying related to the chaos in Egypt.
"We need to see the holdings in the ETF increase again before we can see gold prices start to head up and make a new high. ETF in itself is a reflection of a longer-term demand for gold," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
"The ETF is decreasing due to the optimism in the US economy. If we see concerns on unemployment coming back to haunt us, then perhaps we could see the ETF holding start to increase again."
US gold futures for February fell $1.4 an ounce to $1,339.30 an ounce, having ended up nearly 2 percent on Friday.
Stocks tumbled and Brent crude futures climbed to a 28-month high near $100 a barrel as fears of unrest throughout the Middle East and choking energy prices sparked by deadly protests in Egypt sent investors rushing to reduce risk.
Egyptian protesters were camped out in central Cairo on Monday and vowed to stay until they had toppled President Hosni Mubarak, whose fate appeared to hang on the military as pressure mounted from the street and abroad.
Spot gold is expected to temporarily end the rebound around $1,348 and retrace to $1,320 as the sharp surge on Friday is regarded as part of a wave (4) correction, according to Wang Tao, a Reuters market analyst for commodities and energy technicals.
In the physical market, dealers noted selling at around $1,345 an ounce in Singapore but any price dips also attracted buying in Hong Kong, a centre for gold trading in East Asia.
"There's a bit of short covering but China is out of the market after prices jumped more than $20 last week," said a dealer in Hong Kong. "I think the problem in Egypt could be resolved soon. If the US is doing something, it will be solved. You can't have so much violence in so many days. But I think people will still want to buy gold on dips."
President Barack Obama on Sunday urged an "orderly transition" to democracy in Egypt, stopping short of calling on President Hosni Mubarak to step down but signaling that his days may be numbered. – Reuters
