May 28, 2014 / 3:17 AM / 5 years ago

PRECIOUS-Gold hits 3-1/2 mth low on strong US data, weak China demand

* Gold falls to lowest since early Feb
    * China demand fails to pick up despite sharp price drop
    * Prices likely to test further lows -analyst

 (Updates prices)
    By A. Ananthalakshmi
    SINGAPORE, May 28 (Reuters) - Gold fell to a 3-1/2 month low
on Wednesday, adding to sharp overnight losses on fears of
slowing demand in top consumer China and as strong U.S. economic
data blunted the metal's investment-hedge appeal.
    Spot gold dropped to $1,260.74 an ounce, its weakest
since early February, before steadying at $1,264.70 by 0635 GMT.
The metal slid 2.3 percent in the previous session - its biggest
one-day decline since December. 
    Gold had been largely steady in the last few weeks, with
technical analysts citing its recent pennant chart formation,
also known as a flag because of its triangular shape, which
represents a brief consolidation with narrowing price ranges
before the previous market move is resumed.
    "The technical profile has broken down even further and we
are likely to test even lower prices. I don't see anything
supportive at the moment," said Victor Thianpiriya, an analyst
at ANZ.
    Thianpiriya said the weakness in Chinese demand was also
worrying.
    Trade data on Tuesday showed that China's imports of gold
from main conduit Hong Kong fell to a 14-month low in April as
importing banks were adequately stocked amid softer demand and a
weaker yuan. 
    Chinese demand failed to pick up on Wednesday despite the
sharp overnight drop in prices.
    "We have had a $30 price drop and still no jump in Chinese
premiums. That is not supportive," said ANZ's Thianpiriya.
    Prices for 99.99 percent purity gold on the Shanghai Gold
Exchange were about $2-$3 an ounce above global
prices, little changed from Tuesday's premiums. 
    The price differential between Chinese prices and global
prices is considered a good measure of demand. 
    China has been a big support factor for prices recently,
amid stimulus withdrawal in the United States and weak demand
from No. 2 buyer India.
    Meanwhile, economic data showed that orders for long-lasting
U.S. manufactured goods unexpectedly rose in April and consumer
confidence perked up in May, supporting expectations of a
rebound in economic growth. The data sent the S&P 500 to a new
record, hurting gold. 
    Holdings in SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, rose 8.39 tonnes to 785.28
tonnes on Tuesday - the biggest daily inflow in at least 14
months. 
    Traders said the inflow likely reflected the funds' holdings
before the sharp price drop on Tuesday, and the trend still
remained bearish.
    Among other precious metals, platinum also largely
held on to losses from the previous session after the new South
African mining minister pledged to mediate in a crippling miners
strike now in its fifth month. 
    
    PRICES AT 0635 GMT    
 Metal           Last     Change   Pct chg
                                          
 Spot gold        1264.7     1.31      0.1
 Spot silver        19.1     0.05     0.26
 Spot platinum   1459.49     2.49     0.17
 Spot palladium    828.4     -1.6    -0.19
 Comex gold       1264.7     -0.8    -0.06
 Comex silver     19.095    0.028     0.15
 Euro             1.3632                  
 DXY              80.358                  
                                          
 COMEX gold and silver contracts show the
 most active months
 
 
 (Reporting by A. Ananthalakshmi; Editing by Ed Davies and
Joseph Radford)
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