* Technical weakness, fund selling trigger heavy decline
* SPDR ETF holdings at all-time high above 850 tonnes
* China's gold production hits record high
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Feb 3 (Reuters) - Gold ended lower in
choppy trade on Tuesday, closing below $900 an ounce on heavy
fund selling and chart weakness in spite of strong interest in
assets, such as bullion-backed exchange-traded funds, as a safe
store of value.
George Gero, vice president of RBC Capital Markets Global
Futures, cited profit taking triggered by sell-stops under $900
an ounce and uncertainty about whether the $825 billion U.S.
economic stimulus bill would be passed by Congress.
"When funds are seeing indecisive markets, they sell first
and then wait for news," Gero said.
Bullion <XAU=> was at $895.10 an ounce at 2:42 p.m. EST
(1942 GMT), down 0.9 percent from the last trade $903.15 on
Monday
U.S. gold futures for April delivery <GCJ9> settled down
$14.70, or 1.6 percent, at $892.50 an ounce on the COMEX
division of the New York Mercantile Exchange.
"Gold is a barometer for fear on the markets," Commerzbank
analyst Eugen Weinberg said.
"If the equity markets are down, if sentiment is becoming
more cautious and people are worried about the health of the
financial system, gold prices will rise despite the U.S.
dollar," he added.
Interest in smaller investment products such as gold coins
and bars and physically-backed exchange-traded funds (ETF) has
grown as rising volatility in other asset prices boosts
bullion's appeal as a safe store of value.
Bullion fell $25 an ounce on Monday as investors took
profits after the previous week's more than 3 percent rally,
hurt by fears over weak jewelry demand in India and the Middle
East.
But demand for gold as a haven from risk has limited
losses.
The world's largest gold-backed ETF, the SPDR Gold Trust,
said holdings rose 9.78 tonnes to a record 853.37 tonnes as of
Feb. 2, up more than 9 percent in the past month. []
"When U.S. ETF investors are adding to holdings, it often
shows up as gold rallying as the equity market opens, as
happened yesterday," UBS strategist John Reade said in a note.
"In our view, rapidly growing ETF holdings are a clear sign
of safe haven buying of gold," he added. "This is the dominant
factor in the gold market at present."
WEAK JEWELRY DEMAND
Gold's underlying fundamentals, however, are weak, Weinberg
said with China, the world's largest gold producer, and Russia
both reporting rising production while jewellery demand is
soft.
China's production hit a record 282 tonnes in 2008, the
China Gold Association said, up 4.3 percent from 2007.
[]
High prices are scaring off jewellery buyers, who account
for almost 70 percent of global demand for gold. The volume of
gold jewellery sales in Abu Dhabi fell 70 percent in January
due to rising prices. []
"Basically, there's not much interest from the jewellery
sector and there's profit taking as well as light selling in
Asia," a dealer in Hong Kong said.
Among other precious metals, spot silver <XAG=> was at
$12.35 an ounce, down 0.2 percent from its previous close of
$12.37 late on Monday.
Interest in silver-backed ETFs is also strong, with
holdings of the largest, iShares Silver Trust <SLV.A>, at
record levels.
Platinum <XPT=> was last trading at $960.50 an ounce, down
1 percent from its last finish $970.00, while palladium <XPD=>
was at $189.50 an ounce, down 2.1 percent from its previous
close $193.50 on Monday.
Investors are awaiting U.S. car sales data later in the
session for direction. Falling demand for platinum and
palladium from carmakers, the major consumers of the metals,
has put significant pressure on prices over the last year.
(Reporting by Frank Tang; Editing by Marguerita Choy)
