Gold falls as stock markets hold firm; physical demand strong

by A. Ananthalakshmi, Reuters  |  published on May 28, 2013

Gold fell on Tuesday as Asian stock markets and the dollar firmed after a turbulent week, undermining the metal’s appeal as a safe haven.

Demand in the physical market, however, continued to hold prices near $1,400 an ounce as the recent drops in the spot market lured buyers to invest in bullion.

Spot gold fell 0.25 percent to $1,390.81 an ounce by 0643 GMT, after gaining more than half a percent on Monday. It rose 2 percent last week – its strongest weekly percentage gain in a month – but is down 17 percent for the year.

“The paper market is dropping but we are seeing a different story in the physical market,” said Zane Lim, regional manager of operations at Singapore-based dealer BullionStar. “Everybody
is buying and no one is selling.”

Bullion is being sold at high premiums compared to spot prices as there is not enough supply in the market to meet the strong demand.

“We are not seeing any signs of slowing down. People are still thinking it is a good price to go in at,” Lim said, adding that most of the bullion dealers in Singapore were sold out.

Gold prices remain near a two-year low of $1,321.35 hit in mid-April as investors flock to higher-yielding stocks. Last week, gold gained as investors sought its safe-haven status after the dollar and equity markets were hit by factory data from China and the United States that showed the pace of manufacturing had slowed.

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