Gold extended losses below its highest level in a year on Monday as the dollar and equities strengthened, but the metal remained underpinned above $1,200 an ounce as caution in financial markets prompted investors to channel money into bullion.
The metal jumped to a one-year high earlier this month on turmoil in the stock markets and concerns over the global economy, but posted small losses last week on profit-taking and as equities consolidated.
Bullion remains one of the best performing assets of the year with gains of 15 percent as global uncertainties linger and fund inflows support the rally.
Spot gold fell to a session low of $1,220.75 an ounce, before paring some losses to trade down 0.5 percent to $1,221.36 by 0304 GMT. It declined 0.3 percent on Friday.
“Increases in ETF (exchange-traded fund) holdings continue to support gold higher, while we have seen some of this buying momentum offset by reductions in TOCOM positioning and recent selling in China,” said MKS Group trader Sam Laughlin, referring to the Tokyo Commodity Exchange.
Chinese selling helped send gold lower early on Monday, Laughlin said. Top consumer China has been on the offer since its return from a week-long holiday last Monday, a sign they do not expect prices to go much higher and cannot be counted on to support the market with post-Lunar New Year demand set to falter.
Bullion was also hurt by the strength in the dollar, which was supported by Friday data that showed underlying U.S. consumer price inflation accelerated in January by the most in nearly 4-1/2 years.
Asian share markets edged cautiously higher as investors awaited a rush of February industry surveys to take the pulse of the global economy. Investor optimism in gold was evident in flows. Assets in SPDR Gold Trust, the world’s top gold ETF, rose 2.71 percent to 732.96 tonnes on Friday, the biggest single day inflow since August 2011.
Hedge funds and money managers hiked their bullish bet in COMEX gold futures and options to a near four-month high in the week to Feb. 16, U.S. Commodity Futures Trading Commission data showed on Friday.
Equity funds posted their longest run of outflows since 2008 in the last week, edging closer to “capitulation” levels as risk-off redemptions accelerated, Bank of America Merrill Lynch said on Friday, adding that investors shovelled $3.2 billion into gold, the biggest two-week gold inflow since May 2010.