Gold languishes at 7-week low in Asia as fund outflows resume

Investors pull money out of bullion-backed exchange-traded funds in favour of riskier assets such as equities

Gold hit a fresh seven-week low on Tuesday, after posting its first monthly drop of the year, as investors pulled money out of bullion backed exchange-traded funds in favour of riskier assets such as equities.

Asian shares hit four-month highs on Tuesday on strong Chinese data and dovish comments from Federal Reserve Chair Janet Yellen.

Bullion prices are inversely correlated to equities as gold is seen as a safe-haven asset.

Spot gold was little changed at $1,283.85 an ounce by 0302 GMT, after dropping nearly 1 percent on Monday. The metal briefly fell to a low of $1,278.34 earlier in the session - its weakest since February 11.

"There is a little physical demand coming in at these levels. But unless Chinese demand recovers strongly, we won't see much of an impact on prices," said one Sydney-based precious metals trader.

"But I do think the selling may have been overdone given that the geopolitical tensions in Ukraine are still not resolved. We might climb back to $1,300," the trader said.

Another dealer said there was strong support for prices around $1,280.

"There is good support in the $1,275-$1,280 level. We could see some consolidation at current levels," the trader said.

Outflows from SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, resumed after a two-day pause. Holdings of the fund fell 3.89 tonnes to 813.08 tonnes on Monday - the biggest outflow in more than a month.

SPDR holdings are closely watched to gauge investor sentiment towards the metal.

On the physical side, dealers said there was a slight increase in demand as prices fell towards $1,280.

In China, the world's biggest bullion consumer, local prices have been at a discount to spot prices on weak demand.

The discounts, however, have been narrowing over the last few days, indicating that some buyers are coming back into the market.

Prices for 99.99 percent purity gold on the Shanghai Gold Exchange were at a discount of about 50 cents an ounce on Tuesday, compared with a discount of up to $8 last month, according to dealers.