14 January 2011 (Reuters) LONDON — Gold fell in Europe on Friday after China’s central bank raised lenders’ reserve requirements, with softer haven demand for the metal after solid bond sales by Portugal and Spain also weighing on prices.
The metal pared losses as the dollar surrendered ground to the euro after U.S. data showed a below-consensus rise in retail sales last month, but struggled to gain traction.

Spot gold was bid at $1,361.59 an ounce at 1351 GMT, against $1,372.75 late in New York on Thursday, having earlier hit a low of $1,360.

… “The rally we saw yesterday apparently drew out a few nervous longs who had been waiting for an opportunity to scale back positions,” said Ole Hansen, senior manager at Saxo Bank. “It looks like attention (for now) has turned to other markets like stocks and cyclicals.”

“The overall scenario has not changed but it looks like we are settling in for a bit of range trading here — $1,350/1,400 gold and $28/30 on silver,” he added.

… “China’s move of course has consequences for the gold market, but it is not (just) China that is playing a role,” said Peter Fertig, a consultant at Quantitative Commodity Research. “After yesterday’s ECB conference the market is also concerned that the ECB might hike rates earlier than previously assumed.”

… “Investors are moving again out of safe havens into more risky assets, which also weighs on gold,” he said.

… Traders in Asia reported strong physical gold buying, particularly from China, on Friday, but large bullion-backed exchange-traded funds continued to see outflows.

[source]

RS View: Silly reporters. Instead of calling these “outflows” from the ETFs, it should be called what it is — a redemption of a basket of shares for physical gold by the Authorized Participants (e.g. bullion banks). Such share redemptions would actually be a bullish sign because it entails a reduction in the global supply of paper gold while at the same time signifying a preference by the redeeming party for having the metal over the ETF shares. That is, of course, unless the drawdown in physical gold merely represented the routine sales of the gold inventory that occur to cover the ETF’s administrative expenses.