* Gold sags; Egypt factor temporary
* Correlation with dollar at most positive since Sept
* Coming Up: U.S. Chicago PMI Jan; 1445 GMT
By Amanda Cooper
LONDON, Jan 31 (Reuters) - Gold eased on Monday after
posting its largest daily gain in eight weeks on Friday and
while the market did encounter some safe-haven buying on the
back of the unrest in Egypt, this was expected to be temporary.
Gold is set for its worst monthly performance since December
2009, driven down by the improving tone of some key U.S.
economic data, growing investor confidence and a near-record
decline in holdings of metal in exchange-traded funds.
Even a 2.6 percent fall in the dollar index <.DXY> has not
lifted gold, as the traditional negative correlation between the
two has reached its most positive since mid-September.
Spot gold <XAU=> was last quoted at $1,332.91 an ounce by
1040 GMT, down 0.4 percent, having hit four-month lows last week
at $1,308.00. U.S. April gold futures <GCJ1> were last down 0.6
percent at $1,334.10.
Scenes in Egypt, where protesters were camped out in central
Cairo on Monday, vowing to stay until they had toppled President
Hosni Mubarak, have encouraged some safe-haven buying of gold,
although this support is unlikely to last long, analysts said.
"What we've seen is (Egypt) has limited the downside more
than anything," said VTB Capital analyst Andrey Kryuchenkov.
"Technically, it's still weak, also I think the investment
community realises Egypt is probably a temporary thing,
something will come out of it, even if no one knows exactly what
that will be, more compromise from the government for example."
U.S. President Barack Obama on Sunday urged an "orderly
transition" to democracy in Egypt, stopping short of calling on
President Hosni Mubarak to step down but signaling that his days
may be numbered. []
The dollar index <.DXY> fell on Monday, while the euro hit a
session high against the dollar after euro zone inflation data
for January beat market expectations. []
But gold drew little comfort from the decline in the dollar,
which usually benefits the bullion market, as its traditional
inverse relation to the U.S. currency is still at its most
positive in four and a half months.
When the euro zone debt crisis worsened in May last year,
gold traded almost in lockstep with the dollar as investors fled
the euro. This time around, they appear to be punishing low- or
non-yielding assets in favour of equities and riskier
currencies.
MORE ETF OUTFLOWS
The world's largest gold-backed exchange-traded fund, SPDR
Gold Trust <GLD>, said its holdings slipped to an eight-month
low of 1,224.118 tonnes, reflecting the decline in investor
desire for bullion. []
Holdings of metal in the trust are set for their
second-largest monthly decline since the fund's inception in
late 2004, while open interest in COMEX gold futures staged its
largest weekly fall since at least 1996, according to last
week's Commitment of Traders data.
"We need to see the holdings in ETF start to increase before
gold prices can head up and make a new high. Bullion holdings at
ETFs are a reflection of longer-term demand for gold," said Ong
Yi Ling, investment analyst at Phillip Futures in Singapore.
"Recently, the holdings of gold ETFs have decreased due to
optimism in the U.S. economic recovery. If concerns over jobs
and unemployment come back to haunt us, then we could see the
ETF holding start to increase again."
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http://graphics.thomsonreuters.com/11/01/CMD_SPDR0111.gif
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On the physical market, premiums for gold bars were at their
strongest level since at least 2004 on tight supply, short
covering before the festive season in India and China as well as
physical buying driven by the deadly protests in Egypt.[]
Silver was flat on the day, having risen earlier to a 1-week
high at $28.31, before trading at $27.92.
Platinum <XPT=> was last down nearly 0.5 percent on the day
at $1,784.24 an ounce, while palladium <XPD=> was down 0.9
percent at $806.47.
(Additional reporting by Lewa Pardomuan in Singapore; Editing
by Keiron Henderson)
