Gold price declines as physical purchases slow

Gold retreated yesterday after posting the first monthly advance since August as physical buying across Asia slowed during the Lunar New Year.

Bullion for immediate delivery lost as much as 0.2 per cent to US$1,242.15 an ounce in Singapore trading yesterday. Prices gained 3.2 per cent last month as the MSCI All-Country World Index of equities fell 4.1 per cent on concern that a rout in emerging markets might worsen.

Markets in mainland China, which probably overtook India as the largest gold consumer last year, remain shut until Thursday.

Volumes for the benchmark contract on the Shanghai Gold Exchange slumped on Friday to the lowest level since June 2011. Holdings in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, posted on that day the first two-day expansion since December 2012.

"The Chinese market is on a one-week break, taking some momentum out of physical purchases," Edward Meir, an analyst at INTL FCStone, wrote in a note dated yesterday. "We suspect that the global equity markets will likely see more turbulence in February, which likely will mean that gold should be fairly resilient for a little while longer."

Rising physical demand in Asia has helped bullion rebound from a six-month low on December 31, when prices capped the biggest annual drop since 1981. Rate increases by central banks in Turkey, India and South Africa last week failed to contain January's 3 per cent sell-off in emerging-market currencies, while a Chinese manufacturing gauge fell to a six-month low in January.