Gold fell back on Friday as speculators booked profits from gains in New York, while record high exchange-traded fund holdings underlined strong investor interest amid continuing turmoil in the financial sector.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings rose 7.7 tonnes to another record of 867.19 tonnes on Feb. 5 - the third increase this week.
Gold was trading at $US910.40 an ounce, down $US3.35 from New York's notional close on Thursday, when it hit a session high of $US924 - not far from last week's near four-month high of $US930.40 and within sight of a record of $US1,030.80 hit last March.
"In short, gold is heading much higher, but not without more struggle and occasional disappointment for those looking for a speedy ascent," said Jeffrey Nichols, manging director of American Precious Metals Advisors.
"Further out, over the next year or two, I have no doubt that gold will move to new historic highs well above the $US1,030 level touched a year ago in March."
Gold has rebounded more than 30% since tumbling to a 13-month low of $US680.80 in late October, driven by a recovery in oil prices and steady investment demand, but profit-taking capped gains and purchases from the jewellery sector also slowed.
Gold imports by India, the world's main consumer, plunged more than 90% to just 1.2 tonnes in January 2009, from 18 tonnes in the same month last year, due to high prices and ample stocks, the Bombay Bullion Association said.
But Nichols said buyers in India could eventually adjust to the high prices, which could spur a partial recovery in demand.
"But if Indian buying does not pick up soon, there could be more metal available in world markets to satisfy the rise in US and European investment demand and correspondingly less upward pressure on the price of gold," he said.
Dealers said gold's recent rally was supported by an increase of overall allocation from investment portfolios in the yellow metal, whose appeal as an alternative investment has been boosted by volatile stock markets and fears of global economic recession.
Economic news was bleak on both sides of the Atlantic on Thursday as German manufacturing suffered its biggest decline since 1990 and applications for US jobless benefits soared to a 26-year high.
In the physical sector, dealers noted selling by Japanese investors after an overnight gain in prices. Gold bars were offered at a discount of 50 US cents an ounce to spot London prices, having been quoted on par earlier this week.
"I suppose the general public is still keen to sell their gold because of the high prices," said a physical dealer in Tokyo. "We are offfering gold bars at discount now."
In other markets, the dollar edged down against the yen in cautious trade before jobs data that may paint an even gloomier picture of the US labour market. The euro steadied at $US1.2795.
The Nikkei gained 2.5% on Friday on a softer yen, while oil fell below $US41 a barrel as the focus turned from a stock market rally to bleak economic news.
US non-farm payrolls probably shed 525,000 jobs in January following 524,000 jobs lost the previous month, a Reuters poll showed. The unemployment rate is seen at 7.5%, compared with 7.2%+ a month earlier.
