* Volatile stock markets prompt forced liquidation in gold
* No safe-haven buying despite tumbling equities
* SPDR gold ETF posts no fresh inflows, seen bearish
(Recasts, updates with quotes, closing prices, adds NEW
YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, March 3 (Reuters) - Gold fell to a
three-week low on Tuesday as waning inflows into
exchange-traded funds and the metal's failure to capitalize on
falling stock markets fueled fears its rally may be at an end.
Forced liquidation related to a volatile equities market
and technical weakness also prompted heavy selling in the
yellow metal.
"Clearly, we are seeing some margin-related selling for
other assets weighing on gold. Also, ETF demand has slowed down
significantly," said Bill O'Neill, managing partner of LOGIC
Advisors.
"The market has backed away from $1,000 (per ounce), which
is a formidable barrier at this point," O'Neill said.
Spot gold <XAU=> was at $914.35 an ounce at 2:30 p.m. EST
(1930 GMT), down 1.2 percent from its last quote $925.35 in New
York late Monday. Earlier, it touched a three-week low of
$905.10.
U.S. gold futures for April delivery <GCJ9> settled down
$26.40, or 2.8 percent, at $913.60 an ounce on the COMEX
division of the New York Mercantile Exchange.
Traders were disappointed that the precious metal failed to
move higher after Monday's heavy stock market losses. U.S.
stocks slid to 12-year lows on Monday on heightened concerns
about the health of the financial system.
"Yesterday was the day gold should have moved higher, and
it didn't," said Afshin Nabavi, head of trading at MKS Finance.
"That has left a bit of a bad taste in investors' mouths."
Traders said they are also concerned about the tail-off in
ETF inflows, which were a key factor in pushing prices higher
at the beginning of the year.
But these stalled after the metal broke through $1,000 last
month.
The world's largest gold-backed ETF, the SPDR Gold Trust
<GLD>, said its holdings were 1,029.29 tonnes on Monday, steady
from Thursday and up only 5 tonnes in nearly a fortnight.
"Everyone is looking at the ETF numbers," said Deutsche
Bank trader Michael Blumenroth. "As long as there was money
coming into the ETFs, there was constant demand for gold.
"If this stops, we could see some medium term holders of
gold leaving the market," he said.
GOLD DOWN, TREASURY SPREADS DROP
Traders were also keeping a close eye on the inflation
outlook. UBS strategist John Reade said gold moved higher from
mid-January as inflation expectations, as measured by spread
rates in treasury bond markets, recovered from lows.
"The fact that the recent correction in gold has been
accompanied by falling long dated...spreads should come as no
surprise," he said.
"We suspect the market is reacting to the much worse than
expected U.S. growth data and that the prospects of short term
deflation are now increasing again, outweighing minority-held
fears of much higher long-term inflation," he added.
In India, the world's largest gold market, a 3-percent
drop in rupee-denominated gold failed to attract buyers. Sales
have suffered from rising prices.
The rising supply of gold scrap in Asia and the Middle East
as gold holders cash in on the metal's higher price is easily
meeting demand and depressing prices, dealers say.
Spot platinum <XPT=> was at $1,029.50 an ounce, down 2.3
percent from its previous close of $1,054, while palladium
<XPD=> was at $191.00, up 0.3 percent from its late Monday New
York quote of $190.50. Spot silver <XAG=> at $12.77 an ounce,
down 1.1 percent from its Monday finish of $12.91.
(Reporting by Frank Tang and Jan Harvey; Editing by Marguerita
Choy)
