Gold: Weak jewelry demand, strong dollar hit prices

Weak jewelry demand, strong dollar hit prices
SPDR gold ETF records first outflow since early January
Julius Baer's gold ETF up 18 percent last week (Recasts, updates prices, market activity; adds second byline, dateline, previously LONDON)
By Frank Tang and Jan Harvey

http://www.guardian.co.uk/business/feedarticle/8394276

NEW YORK/LONDON, March 9 (Reuters) - Gold prices dropped more than 2 percent on Monday, as a dollar rise and slight drop of holdings of gold-backed exchange traded funds triggered heavy sell-stop orders.

Higher gold prices and global recession weighed down gold jewelry buying, which accounts for about 60 percent of total gold demand, traders said. "There is a big bull-and-bear disparity in gold. There is investment buying but no jewelry buying, which has dropped sharply," said Jonathan Jossen, a COMEX gold floor trader.

Spot gold fell to a low of $911.95 an ounce and was at $918.15 an ounce at 1:22 p.m. EDT (1722 GMT), down 2.3 percent from its last quote $939.60 in New York late Friday.
Gold for April delivery settled down $24.70, or 2.6 percent, at $918.00 an ounce on the COMEX division of the New York Mercantile Exchange. Demand for gold from jewelry buyers in traditionally strong markets remained weak.

On Monday, the dollar rose amid global recession fears and banking sector concerns, prompting investors to divert money out of gold and into U.S. Treasuries. A stronger dollar makes metals more expensive for holders of other currencies. Gold often rises when the dollar falls.

The world's largest gold-backed exchange traded fund (ETF) recorded its first decline since Jan. 8. Its holdings dipped 0.3 tonnes to 1,028.99 tonnes as of March 8.

Investors also favored oil at the expense of gold on Monday. Oil rallied 4 percent at above $47 per barrel. "A lot of people think gold is much too high compared to where crude is, so they are taking profit," Jossen said.

SOLID ETF DEMAND

Demand for gold from ETFs, which issue securities backed by physical stocks of gold, helped drive bullion higher earlier in the year. Traders said they expected these inflows to resume. "I think that there will be enough worrying news in the first half of 2009 for ETF demand to remain solid," said David Thurtell, an analyst at Citigroup. Holdings of Julius Baer's gold-backed exchange traded fund rose 109,000 ounces or 18 percent last week, the bank said in a weekly statement on Monday.

(Additional reporting by Paul Lauener and Pratima Desai; Editing by David Gregorio)