Gold Prices Edge Lower

Gold was slipping Tuesday as the discrepancy between major speculative interest and limited physical demand led some traders to take profits.

April delivery gold contracts were falling $2.30 to $687.50 an ounce on the Comex division of the New York Mercantile Exchange, but the losses had been worse earlier. The PowerShares DB Gold(DGL Quote) exchange-traded fund, which invests in bullion futures, was slipping also, off 1.1%.

The ETFs that hold bars of bullion, streetTracks Gold Shares (GLD Quote) and iShares Comex Gold Trust (IAU Quote), were sliding in line with the metal.

"This is a much-needed correction," says Rhona O'Connell, a market analyst at GFMS Analytics in London. She says speculative interest in gold hasn't necessarily been matched by underlying long-term investment demand.

In addition, the recent volatility, which saw futures prices jump $23 an ounce in a single session last week, will have unnerved buyers in India, O'Connell says. However, the return of Chinese buyers to the market now that lunar New Year celebrations are over should boost demand, she says.

The allure of gold as a safe-haven investment should become particularly appealing in China, with the Shanghai Composite Index sinking almost 9% overnight. Extended declines could magnify such an effect.

On the economics front, data were mixed. A report of much-worse-than-expected durable-goods orders for January was met with a robust reading on sales of existing dwellings last month. But one observer warns that the shine in home sales may be an anomaly.