SINGAPORE: Bullion reversed early gains on Tuesday, coming off a 1-week peak touched in the previous session, as more outflows from gold exchange-traded funds (ETFs) summed up investors' weakening confidence in the precious metal.
Investors were still licking their wounds after gold posted its biggest-ever daily loss in dollar terms last Monday in a brutal sell-off that surprised ardent gold investors and bulls.
"From a technical stand point, there are still downside risks to gold prices. I suspect we haven't really seen the market turning around to be bullish in gold prices just yet," said CIMB regional economist Song Seng Wun.
Gold hit a session high of $1,431.31 an ounce but gave up gains and stood at $1,416.26 by 0624 GMT, down $8.88. Prices sank to around $1,321 on April 16, its lowest in more than 2 years. Gold has dropped around 15 percent this year.
U.S. gold futures for June delivery stood at $1,415.40 an ounce, down $5.80.
But the recent sharp drop in prices and an uneven rebound has attracted buying interest in Asia, sending premiums for gold bars in Singapore to the highest since 2008.
Gold has been caught in a tug-of-war between physical buyers seeking bargains and wary investors cutting exposure to the precious metal on nagging worries about central bank sales and prospects of easing inflation.
Physical buying persisted in Asia even though spot gold has rebounded more than $100 from last week's lows, keeping premiums for gold bars at multi-month highs in Singapore and Hong Kong as supply also tightened for coins and other products.
"If you want gold real quick, you have to pay big premiums. People are still buying gold, and India is coming in. But Thailand is slow because they are waiting for prices to come off again," said a dealer in Singapore.
India, the world's largest gold consumer, celebrates Akshaya Tritiya, a key gold-buying festival, next month, while the wedding season will continue till early June. Indian parents give gold jewellery to their daughters at weddings as a custom.
ETF OUTFLOWS
Dealers, still puzzled by the steady outflows from gold ETFs, barely reacted to disappointing manufacturing data from China, which suggests the world's second-largest economy faces global headwinds into the second quarter.
Holdings on SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, tumbled to their lowest level since early 2010, which indicated that some investors were shifting their money into equities.
The typically safe-haven precious metal has failed to react to tensions in the Korean peninsula and recent bombings at the Boston Marathon, which killed three people and wounded more than 200.
Gold prices have also come under pressure due to Cyprus' plan to sell excess gold reserves to raise around 400 million euros ($523 million), which led to speculation other indebted euro zone countries could follow suit.
In other markets, Asia shares and other riskier assets fell back while the yen rose broadly after data showed China's manufacturing growth slowed in April, underscoring market concerns about global growth prospects.
