Gold prices paused in Asia Monday as investors booked profits and expected a quiet day ahead of the Presidents Day long weekend in the U.S., but take-up of gold exchange traded funds as a safe-haven play continued unabated. Gold hit a near seven-month high of $952.55 a troy ounce last week, sparking views that bullion prices were set to race up to the $1,000/oz barrier before long. But some market participants locked in profits from this month's rally, with physical selling in Asia as well as caution over general market reaction to news that the U.S. House of Representatives had passed the US$787 billion economic stimulus bill. Prices weakened to an intraday low of $937.20/oz, down $4.40 on the New York close. "If the market likes the stimulus, gold could go down. But it would also mean the U.S. borrowing billions, trillions of dollars, which will weigh on the dollar," said a Sydney-based trader. While the passing of the U.S. economic stimulus package and possible linking to help distressed mortgages may translate into more positive sentiment for equity markets, the economic situation around the world remained dire. Japan reported a GDP drop of 3.3% in the final quarter of 2008 on the previous three months, beating expectations. But year-on-year, Japan's GDP fell 12.7%, the worst reading in almost 35 years. The divergence between the performance of the commodity complex and gold showed that demand for the metal as a store of value was outweighing a huge slump in fabrication demand, Macquarie said in a report. Gold is likely to keep performing well because of economic uncertainty and risk aversion. "Other upside risk could come from any further macro shocks, with competitive devaluation, a euro monetary zone breakdown, admission of credit default swap write-downs, risks and/or a sustained slowdown for longer than is currently expected just some of the many low-probability but high-impact catalysts for strong gold price spikes," Macquarie said. While investors are rushing into gold ETFs, physical buying for fabrication purposes has dried up. Global no. 1 gold consumer India so far this month has bought no gold compared with 1.9 metric tons last month, already only a fraction of its usual monthly gold purchases. At the same time, the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, last week hit daily new record highs. As of Feb. 13, gold holdings hit a record high of 985.86 tons, up 15.29 tons on the day, or 1.6%. Gold holdings are up nearly 200 tons since the start of the year alone. "There's physical selling, given current prices. Without that selling, we'd be at $1,000/oz," said one trader. At 0551 GMT, spot gold traded at $937.60/oz, down $4.00 on the New York close. Silver stood at $13.53/oz, down 14 cents. Platinum traded at $1,055.00/oz, down $6.00, while palladium was down $4 at $211.00/oz. On Tocom, gold futures rose Y12 to Y2,773 a gram, and platinum futures were down Y5 at Y3,120/gram

Source