Gold fell more than 1% on Monday after speculators booked profits from a rally to a near four-month high last week, but worries about the state of the global economy could still spur buying from investors.
Gold rose 5.6% in January, its third consecutive monthly rise, partly driven by flight-to-quality buying after funds poured more money into bullion as an investment instead of other asset classes such as stocks and treasuries.
In Asia today, gold was trading at $US914.40 an ounce, down $US12.60 from New York's notional close. Bullion rallied more than 2% to hit a high of $US930.40 - its strongest since October 10, when it hit $US931, its highest in more than two months.
"I am bullish but I am waiting for prices to move above $US930 to turn more bullish. That seems like the key level to look at,'' said Adrian Koh, an analyst at Phillip Futures in Singapore, referring to the recent highs.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said it held a record 843.59 tonnes of gold on January 29, up 10.71 tonnes from January 27, as gold's recent rally attracted buying from funds and investors.
Speculative gold players in the non-commercial category boosted their net long positions to 141,114 lots on gold futures traded on Comex at January 27, up from 123,937 net long lots at January 20, Commodity Futures Trading Commission data showed.
But the physical sector remained slow, with jewellers staying on the sidelines because of high prices. India's gold futures hit an all-time high on Friday, tracking strong global markets and support from a weak rupee.
India is the world's largest gold consumer and the jewellery sector accounts for almost 70% of global bullion demand.
"From the physicals' perspective, prices are getting more expensive, so buyers will be more inclined to hold back first. Jewellery buying is lower on higher prices from places like India and perhaps also due to the effects of the global economic crisis,'' said Koh of Phillip Futures.
"But when we take a look at the investment demand for gold, it still looks firm,'' he said.
"We are seeing profit-taking in Asia, which is also because gold couldn't hold above $US930. It may fall further before trying to get to the higher levels again,'' said a dealer in Hong Kong.
"But I guess the market is waiting for the US Senate to pass the rescue package. If they don't pass it, then it may bring good news to gold,'' he said.
