Gold prices eased on Monday as demand waned for gold-backed exchange funds and investors continued to digest the effect of wide-ranging US government spending cuts on bullion prices. Trading was quiet as a lack of major US economic indicators and a flat US equities market on Monday failed to provide gold with a new catalyst.
Some investors remained on the sidelines, with President Barack Obama and congressional Republicans still apart on a deal to avert automatic US budget cuts. The White House ordered cuts in government spending on Friday night. Gold, a traditional safe haven in times of economic uncertainty, is also viewed as an inflation hedge, and a major reduction in US spending has assuaged most inflation concerns. Also weighing on investor sentiment, data showed holdings of the world's largest gold-backed ETF the SPDR Gold Trust posted a ninth consecutive daily decline on Friday.
"February marked the largest monthly outflow across physically backed gold exchange-traded products. Continued net redemptions at this pace pose the largest downside risk to prices, in our view," Suki Cooper, precious metals strategist at Barclays Capital, said in a note. Spot gold was down 0.2 percent at $1,571.50 an ounce by 12:16 pm EST (1716 GMT).
US gold futures for April delivery were down $1.10 an ounce at $1,571.10, with trading volume on track to finish sharply below its 250-day average, preliminary Reuters data showed. The SPDR Gold Trust notched an outflow of 0.6 tonnes on Friday, extending its losing streak after reporting the biggest ever one-month drop in February.
Gold prices in February fell for a fifth straight month for the first time since 1997, as buying interest has dried up after the precious metal failed to rally back toward record highs last year despite successive rounds of monetary easing from the Federal Reserve. While gold ETFs were lacklustre, sales of American Eagle gold coins and silver rose sharply year-on-year in February, highlighting fervent buying by individual investors.
Silver was down 0.5 percent at $28.43 an ounce. The US dollar's recent strength has hurt gold's safe-haven status, said Danske Bank analyst Christin Tuxen. Bullion investors now look forward to the European Central Bank's meeting on Thursday for trading cues. Underpinning gold prices was news Janet Yellen, the Federal Reserve's influential vice chair, said on Monday aggressive US monetary stimulus is warranted given how far the economy was operating below its full potential. Among other precious metals, platinum was down 0.6 percent at $1,560.74 an ounce and palladium dropped 1.3 percent to $709.97 an ounce.
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