U.S. gold falls as lower physical demand weighs

NEW YORK, Feb 12 (Reuters) - The news of lower bullion
demand from top consumer India due to near-record prices took a
toll on sentiment of U.S. gold futures on Tuesday, but higher
flight-to-quality and investment buying remained supportive to
the futures market.

Platinum contracts resumed their rally toward the historic
$2,000 mark, reaching a record high for the ninth consecutive
session, and continued to be driven by fears of a huge market
deficit.

India's Bombay Bullion Association said on Tuesday that gold
imports in January slumped to just five tonnes from 62 tonnes in
the same month a year ago as a surge in prices saps demand in
the world's largest consumer. [ID:nDEL107727]

George Nickas, broker with FC Stone in New York, said that
sharply reduced gold jewelry demand from India could weigh on
bullion, although the market could be sustained by investors
buying gold as a safe-haven investment.

"People who are buying gold are the high net-worth
individuals, and people who are selling it are people who are
trying to survive the (weaker) economy. It's unclear where gold
is going to go in the near term," Nickas said.

"I think the direction is going to be dictated by how the
stock market acts over the next 30 to 60 days," he said.

At 11 a.m. EST (1600 GMT), the gold contract for April
delivery at the COMEX division of the NYMEX GCJ8 was down
$5.80 to $920.90 an ounce amid light volume, trading between
$915.50 and $928.50.

A weaker dollar against the euro, and firm energy prices
failed to lift gold futures, as investors took profits after its
rally toward a record high. The April contract had reached an
all-time high of $942.20 on Jan 30.

Meanwhile, the news of lower gold supply because of mining
operation issues in top producer South Africa could boost
bullion prices.

South African gold output fell 6.5 percent in 2007 compared
with 2006 in volume terms, while total mineral production fell
by 0.2 percent compared with the previous year, official data
showed on Tuesday. [ID:nWEB4776]

"Investor enthusiasm for gold was already very strong,
thanks to the reverberations of the U.S. economic crisis, and it
just got stronger, following the collapse of the South African
electricity network," Fortis Bank Global Markets in London told
clients in a note.

Fortis said that the market now expected much-reduced South
African production this year as that country's power problem
persisted. The bank said it forecast a continued price increase
in gold with occasional corrections due to profit taking.

Spot gold <XAU=> was quoted at $917.50/918.40, versus
Monday's New York close of $922.70/923.40. London bullion
dealers fixed the afternoon spot price at $917.00.

PLATINUM TARGETS $2,000

Platinum futures rallied toward the $2,000 level on the back
of strong fund buying, as lingering supply concerns in top
producer South Africa continued to support prices in an
extremely tight market.

South African power utility Eskom [ESCJ.UL] is in
discussions with the government to ensure sufficient funding to
meet its expansion program, a spokesman said on Tuesday.

Eskom, which supplies almost all of the electricity to
Africa's biggest economy, cut power to mines last month, hitting
production and knocking investor confidence, because it could
not guarantee supply. [ID:nL12832318]

The news of Anglo Platinum (AMSJ.J: Quote, Profile, Research), the world's largest
platinum miner, cutting its 2008 production forecast on Monday
due to the power crisis, remained supportive to the white
metal.

The active NYMEX platinum contract for April delivery PLJ8
was up $12.60 to $1,952.00 an ounce. In overnight trade, the
April contract had reached an all-time peak of $1,970.90. Spot
platinum <XPT=> fetched $1,943/1,950.

For sister-metal palladium, the NYMEX March contract PAH8
was down $6.05 or 1.4 percent to $437.35 an ounce. Spot
palladium <XPD=> fetched $434/437 an ounce.

COMEX March silver SIH8 was up 1.5 cents to $17.485 an
ounce, trading between $17.335 and $17.650.

Spot silver <XAG=> was at $17.45/17.50, compared with its
last Monday quote of $17.47/17.52. London silver was fixed at
$17.46.
(Reporting by Frank Tang , editing by Matthew Lewis)