Gold eased on Tuesday, losing its shine as an alternative investment after stock markets rallied on hopes for a steady U.S. recovery, and as holdings on bullion exchange-traded funds slipped to their lowest in more than three years.
Although physical buying has helped gold rebound from a 2-year low hit in April, daily outflows on ETFs reflect investors' sagging interest in the metal, which has fallen more than 12 percent in 2013 after rising for each of the past 12 years.
Gold eased $3.70 an ounce to $1,465.19 by 0451 GMT. It rose to a near three-week high of $1,487.80 on Friday on safe-haven buying spurred by a cut in interest rates by the European Central Bank and the Fed's decision to stick to its stimulus programme.
"I think sentiment is quite mixed. Physical demand supports gold but you can see some liquidation in the market," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.
"Gold in the medium-term is still a little bit bearish. You can see holdings on SPDR are still down about 3 to 4 tonnes every day."
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.31 percent to 1062.30 tonnes on Monday -- the lowest since August 2009. In terms of ounces, holdings fell to 34,153,901.
Gold plunged to around $1,321 on April 16, its lowest in more than two years, after a drop below $1,500 and fears of central bank sales led to a sell-off that stunned investors and prompted them to slash holdings of exchange-traded funds.
The price drop ignited a buying frenzy in Asia and other parts of the world, leading to a shortage of gold bars, coins and nuggets in Hong Kong, Singapore and Tokyo, and helping the metal stage a rebound.
But gold's failure to revisit the psychological $1,500 level suggested that funds were still on the sidelines.
U.S. gold for June delivery was at $1,464.90 an ounce, down $3.10.
"We expect the physical demand to support the market, but (that) could prove difficult to maintain in the face of rallying equity markets, ETF outflows and speculative financial shorts," said ANZ in a report.
"Additionally, global inflation concerns that could support gold are benign. We expect to see a pick-up in prices through the second half of 2013, where gold should trade in the mid-high 1,500 an ounce area."
ANZ, which cut commodity price forecasts on Tuesday, sees gold averaging at $1,573 in 2013 and $1,648 in 2014.
"However in the near term, the tide is moving out and gold is likely to drift lower before finding a base from which to recover," it said.
Spot gold is expected to revisit its May 1 low of $1,439.74, according to Reuters technical analyst Wang Tao.
In other markets, Asian shares were capped on Tuesday by caution over weak global growth data, but Japanese equities scaled a near five-year peak after the Standard & Poor's 500 Index closed at a record high overnight.