By Amanda Cooper and Jan Harvey
Tue Jan 25, 2011 (Reuters) — Spot prices are on course for a 6.4 percent decline in January, which would be the biggest monthly fall since a 7-percent drop in December 2009. Selling is largely a consequence of a current run of positive economic data.

“(We forecast gold) to have a bad first quarter,” said Mitsubishi analyst Matthew Turner. “Economic data ended the year quite strongly and I thought if it carried on strongly, interest rate expectations would start to rise.

“But maybe the economic outlook isn’t as rosy as people think, and maybe we will see a recovery (in gold prices) from Q2 onwards,” he said.

For the moment, strong consumer demand, particularly in Asia, continues to provide a floor for spot gold prices, and a significant decline in speculative holdings of gold futures has taken some of the pressure off.

But investor sentiment towards gold has soured in the last few sessions, as evidenced by the largest one-day outflow in three months from the world’s biggest exchange-traded gold fund. Holdings in the SPDR Gold Trust fell 10.926 tonnes to 1,260.843 tonnes on Jan 24.

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RS View: I’ve said it before and I’ll say it again now, the reporters are getting it wrong when they equate outflows of gold from the ETFs with “sour” investor sentiment. What they need to work harder to understand is that these are NOT actively managed funds whose gold inventory is tweaked to ebb and flow based on public sentiment in the shares. Instead, the ETFs are more like a central coat-check room in which the various bullion banks have temporarily hung out their own inventories (i.e., meaning, their unallocated stock which they hold loosely on behalf of their depositors). And whereas the claim tickets (ETF shares) may freely circulate on the open market, any significant outflow of physical inventory is simply and primarily indicative of a bullion bank reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market — for example, to meet the demands emerging from Asia.