Gold fell more than one percent on Tuesday, retreating from the previous day's four-month high, after President Vladimir Putin said Russia would only use military force in Ukraine as a last resort. The precious metal rallied nearly 2 percent on Monday as investors, alarmed by East-West tensions, piled into bullion and government debt. Crude oil futures climbed while stock markets plunged.
Those moves went into reverse early on Tuesday, with world shares and hard-hit Russian assets recovering some lost ground after Putin's remarks. Financial assets failed to retrace the whole of the sharp moves seen globally on Monday. Spot gold fell 1.3 percent to $1,333.50 by 1434 GMT and was headed for its worst daily loss since January 30. US gold futures for April delivery were down $16.70 an ounce at $1,333.50.
"We need to hold Friday's lows, otherwise a deeper correction could be looming," Ole Hansen, Saxo Bank's head of commodity strategy, said. "The Ukraine situation has eased but not gone away so we will continue to see market reactions to news from the region, but at least the risk of war, which was the main driver for gold, has now been reduced."
"Hedge funds have taken over the baton from (reduced) physical buyers in China, and as they are much quicker to react to changing sentiment, the risk has suddenly switched back to the downside," he added.
Gold remains up 0.6 percent this week, having reached its highest since October 30 on Monday at $1,354.80 an ounce. However, its could be vulnerable to data releases later this week, VTB Capital analyst Andrey Kryuchenkov said, including ADP jobs figures on Wednesday, a European Central Bank statement on Thursday, and Friday's US nonfarm payrolls.
"Gold is a sell ahead of macro headlines this week, bar geopolitical tensions, with an overhang of speculative longs, easing physical flows and a potentially stronger dollar," he said.
In the physical market, dealers in Singapore noted selling, which kept premiums for gold bars unchanged at 80 cents to $1 an ounce to spot London prices. Weakening differentials between 99.99 percent purity gold on the Shanghai Gold Exchange and cash gold were likely to crimp demand from China. India's trade minister said on Tuesday he had raised the issue of easing some curbs on gold imports with the finance ministry, as the restrictions were encouraging smuggling and hurting the gems and jewellery industry.
India lost its spot as the world's biggest gold consumer to China last year, after the government imposed the restriction on imports to narrow the current account deficit. Silver dropped 1.7 percent to $21.01 an ounce, while spot platinum was down 0.6 percent at $1,444.25 an ounce and spot palladium gained 0.4 percent at $749.22 an ounce. South Africa's Association of Mineworkers and Construction Union on Tuesday lowered its wage demands for the first time, raising hopes of a breakthrough after nearly six weeks of strikes at the world's top platinum producers.
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