* Gold sags after U.S. data, positive Wall St open
* Egypt factor seen lending some temporary support
* Correlation with dollar at most positive since Sept
(Updates prices, adds comment)
By Amanda Cooper and Jan Harvey
LONDON, Jan 31 (Reuters) - Gold fell on Monday following
its biggest one-day gain of the year so far as equities steadied
after Friday's losses and U.S. consumer spending data for
December beat expectations.
The market was still encountering some safe-haven buying on
the back of the protests in Egypt, but this was expected to be
temporary, analysts said.
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 fall in the dollar index <.DXY> has not lifted gold
this month, as the traditional negative correlation between the
two has reached its most positive since mid-September. []
Spot gold <XAU=> fell as low as $1,322.90 an ounce and was
bid at $1,328.25 at 1511 GMT, against $1,338.30 late in New York
on Friday. U.S. gold futures for April delivery <GCJ1> fell
$12.70 to $1,329.00 an ounce.
U.S. stocks opened higher on Monday as merger activity and
solid earnings, including Exxon Mobil <XOM.N>, overshadowed
concerns about unrest in Egypt spreading in the Middle East.
European shares cut early losses to steady. [] []
"Last week the stocks started seeing a bit of interest after
a long while... so there seem to be some longs liquidating their
positions in gold," said Afshin Nabavi, head of precious metals
trading at MKS Finance.
"Once that is over, we will be back into normal
circumstances, and then we should see a rally up in gold. For
the time being, I would say $1,300-1,350 (is the range). If we
get below $1,300, it could get a little bit ugly."
Gold has come under pressure this month from a raft of more
positive U.S. economic data, which has lifted appetite for
assets seen as higher risk, such as stocks.
The dollar meanwhile fell around 0.65 percent versus the
euro, after a jump in euro zone inflation data lifted the single
currency and bolstered the view that interest rates in the
region could rise more quickly than in the United States. []
The prospect of higher interest rates may hurt gold,
analysts said, as the opportunity cost of holding non-interest
bearing assets goes up as rates increase.
EGYPT SUPPORTS
Scenes in Egypt, where protesters intensified their campaign
to force President Hosni Mubarak to quit, 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."
On the physical market, premiums for gold bars were at their
strongest since at least 2004 on tight supply and short covering
before the festive season in India and China, as well as
physical buying driven by the deadly protests in Egypt.[]
But 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.
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Silver was up 0.6 percent at $28.07, having risen earlier to
a one-week high at $28.31. Platinum <XPT=> was last down nearly
0.7 percent on the day at $1,779.50 an ounce, while palladium
<XPD=> was down 0.6 percent at $808.22.
(Editing by Keiron Henderson)
