Gold dips on stronger dollar, stocks even as fund inflows continue

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold extended losses below its highest level in a year on Monday as the dollar and equities strengthened, but the metal remained underpinned above $1,200 an ounce as caution in financial markets prompted investors to channel money into bullion funds.

The metal jumped to a one-year high earlier this month on turmoil in the stock markets and concerns over the global economy, but posted small losses last week on profit-taking and as equities consolidated. Bullion remains one of the best performing assets of the year with a 15 percent gain.

Investor optimism was evident in fund flows: assets in SPDR Gold Trust, the world's top gold exchange-traded fund, saw the biggest single-day inflow since August 2011 on Friday.

Spot gold slumped over 1 percent to a session low of $1,211.30 an ounce, before paring some losses to trade at $1,213.80 by 0739 GMT. It declined 0.3 percent on Friday.

"Increases in ETF (exchange-traded fund) holdings continue to support gold higher, while we have seen some of this buying momentum offset by reductions in TOCOM positioning and recent selling in China," said MKS Group trader Sam Laughlin, referring to the Tokyo Commodity Exchange.

Top consumer China has been on the offer since its return from a week-long holiday last Monday, a sign they do not expect prices to go much higher and cannot be counted on to support the market with post-Lunar New Year demand set to falter.

Bullion was also hurt by a higher dollar, which was supported by Friday data that showed underlying U.S. consumer price inflation accelerated in January by the most in nearly 4-1/2 years. Asian share markets edged cautiously higher.

But investor sentiment in gold remained largely bullish.

The SPDR ETF saw an inflow of 19.33 tonnes on Friday alone, bringing total assets to 732.96 tonnes, its highest since May 2015.

Inflows into the fund since the beginning of the year have already surpassed the quantity of outflows seen in all of 2015.

Holdings of the top eight gold ETFs have also shown a similar trend.

Other data showed speculators hiked their bullish bet in COMEX gold futures and options to a near four-month high in the week to Feb. 16.

Bank of America Merrill Lynch said on Friday that equity funds posted their longest run of outflows since 2008 in the last week, while investors shovelled $3.2 billion into gold, the biggest two-week gold inflow since May 2010.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Anand Basu)