Profit Taking, Poor Jewelry Sales Dent Gold Price but Gold ETF Holdings Hit New Record

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"Gold extended losses on Tuesday. . .because of profit taking, but record exchange traded fund holdings still boosted sentiment."

Gold extended losses on Tuesday, after posting its biggest daily percentage fall in three weeks the previous day because of profit taking, but record exchange traded fund (ETF) holdings still boosted sentiment.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings rose 9.78 tonnes to a new record of 853.37 tonnes of gold as of February 2 - an increase of more than 9% in the past month.

Gold was trading at $901.40 an ounce, down $1.75 from New York's notional close on Monday, when it dropped more than 2% in selling also driven by weak demand from the jewelry sector. Gold hit a near four-month high of $930.40 on Friday.

Gold has bounced more than 30% since tumbling to a 13-month low of around $680 in late October, aided by a recovery in oil prices, technical buying and investors looking for a safe place to park their assets away from the volatile equity markets.

But high prices also scared off buyers from the jewelry sector, which accounts for almost 70% of global demand for gold. Gold was about 12% below a lifetime high of $1,030.80 struck last March.

India gold futures could hit new highs this week on expectations of a recovery in crude oil and a weaker rupee, but weak physical off-take in the domestic markets could limit the upside. India is the world's largest consumer.

The volume of gold jewellery sales in Abu Dhabi fell 70% in January due to rising prices. "Basically, there's not much interest from the jewelry sector and there's profit taking as well as light selling in Asia," said a dealer in Hong Kong. "But we can still bargain hunt at lower levels. That's why we also see a rebound, which is driven by bargain hunters," said the dealer, referring to a drop to an intraday low of $895.60 an ounce.

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