Gold falls 1 pct as equities rise, dollar gains

New York (Jan 7) Gold fell about 1 percent on Tuesday, set to snap five straight sessions of gains as a stronger dollar and rebound in U.S. stocks triggered profit-taking following bullion's early 2014 rally.

The S&P 500 equities index rose 0.6 percent after declining U.S. trade deficit enticed buyers back into stocks after three straight days of losses, while the dollar strengthened on the trade data, which also pressured gold.

Analysts said gold appeared to find support from funds' index rebalancing and equities' losses following last year's tumble in bullion prices and stock markets' record run-up.

However, a rising interest-rate environment after the Federal Reserve announced plans to trim its massive bond-buying plan and an improving U.S. economic outlook could pressure gold, analysts said.

"While further upside cannot be ruled out in the short term..., the macro backdrop remains intact and so are the challenges that are in store for gold for the rest of this year," said UBS precious metals analyst Joni Teves.

Spot gold fell 0.9 percent to $1,226.60 an ounce by 11:39 p.m. EST (1639 GMT).

U.S. gold futures for February delivery were down $12.40 to $1,225.60 an ounce.

Gold prices had gained nearly 4 percent in the previous five sessions, mostly because of a fall in equities after record 2013 gains.

Bullion posted a 28 percent drop last year, its largest in more than three decades, as the U.S. Federal Reserve announced plans to unwind its ultra-loose monetary policy.

Traders will now focus on U.S. non-farm payrolls and trade numbers on Friday, which will be preceded by Wednesday's minutes of the Federal Reserve's December policy meeting.

PHYSICAL DEMAND

Limiting losses was a pickup in physical demand from top buyers China and India, dealers said.

Indian officials are in talks to cut a record high import duty on gold and relax rules on exports, government sources said. The measures helped narrow the trade deficit, but now threaten to encourage smuggling.

Silver, whose price tends to be more volatile than gold, fell 2.5 percent to $19.64 an ounce, well below a four-week high of $20.33 in the previous session.

Platinum was down 0.5 percent at $1,405.25 an ounce, having risen to a seven-week high of $1,420.75 on Monday, while palladium gained 0.3 percent at $737.25 an ounce.