* SPDR trust sees biggest decline in over three months
* Correlation with dollar erodes
* Coming up: Reuters precious metals price forecast polls,
1300 GMT; U.S. consumer confidence, Jan; 1500 GMT
(Updates throughout with comment, prices; pvs SINGAPORE)
By Amanda Cooper
LONDON, Jan 25 (Reuters) - Gold fell to its lowest in ten
weeks on Tuesday, putting the price on course for its worst
monthly performance in 13 months as safe-haven demand evaporated
and investors booked further profits on the 2010 rally.
Strong consumer demand, particularly in Asia, continues to
provide a floor for the price and a significant decline in
speculative holdings of gold futures has taken some of the
pressure off.
But investor sentiment towards gold has soured in the last
few sessions, as evidenced by the largest one-day outflow in
three months from the world's biggest exchange-traded gold fund.
"Risk aversion is definitely much lower at the moment than
it was a few weeks ago," said Commerzbank analyst Daniel
Briesemann.
"It is becoming increasingly clear that especially as the
debt crisis in the euro zone periphery calms, investors feel
less of a need for safety," he said, adding: "That's a major
reason for letting gold fall as much as it has over the last
couple of days."
Spot gold <XAU=> was last at $1,327.38 an ounce by 1015 GMT,
down 0.5 percent on the day and set for a 6.5 percent decline in
January, the biggest monthly fall since a 7-percent drop in
December 2009.
U.S. gold futures for February delivery <GCG1> were down 1.3
percent at $1,326.80 an ounce.
Adding to the case against gold for now was strong demand at
the euro zone rescue fund's first debt offer, which pushed the
euro to two-month highs.
EFSF BONDS FLY
The European Financial Stability Facility (EFSF) launched
its first sale of bonds and market sources said demand, at 48
billion euros, dwarfed the 5 billion on offer. []
The euro's rise to two-month highs did little to stem the
decline in the gold price, which because of its usual inverse
link to the U.S. currency, usually profits from dollar weakness.
However, this correlation has eroded over the last week and
has reached its most positive in four months, meaning gold is
moving more frequently in lockstep with the dollar.
The improved economic data, combined with speculation that
the European Central Bank might raise interest rates, pushed the
euro to a two-month high. The single currency held near the peak
on Tuesday.
"The gold market is a bit negative for the time being," said
Ronald Leung, a physical trader at Lee Cheong Gold Dealers,
adding that talk of further tightening from China before the
Lunar New Year holiday also adds to the bearish sentiment.
"But on the physical side, people are still buying. There
doesn't seem to enough supply in the physical market."
India's central bank raised key interest rates on Tuesday in
a bid to clamp down on resurgent inflation and warned that
higher food prices could become entrenched if steps to boost
output are not taken. []
Even with price pressures building up in the emerging world,
investors are shifting out of gold right now.
Holdings in the SPDR Gold Trust <GLD>, the world's largest
gold-backed exchange-traded fund, fell 10.926 tonnes, its
biggest one-day decline since early October, to 1,260.843 tonnes
by Jan 24. []
Spot silver <XAG=> fell to $26.64 an ounce, its lowest in
nearly two months. It was trading at $26.78, down half a
percent.
ETF flows have also been an undermining factor for silver.
Holdings of metal in the iShares Silver Trust <SLV>, the world's
largest silver ETF, have fallen by 425.3 so far this month,
worth about $364 million at today's silver prices.
ETF Securities' London-listed silver product has seen an
outflow of well over 500,000 ounces in less than week. <PHPT.L>
The platinum group metals were not immune to the flurry of
profit-taking that dented gold and silver.
Platinum <XPT=> fell for a second day, declining by 1.4
percent to $1,786.00 an ounce, while palladium <XPD=> dropped
3.2 percent to $782.47, set for its biggest fall in two months.
(Additional reporting by Rujun Shen in Singapore; Editing by
Alison Birrane)
