SINGAPORE Chinese investors sold into gold's rally after returning from a week-long holiday, a sign they do not expect prices to go much higher and cannot be counted on to support the market with post-Lunar New Year demand set to falter.
A lack of buying interest going forward from top consumer China could cut short this year's rally in gold, one of the biggest in years, with the metal up nearly 14 percent since the beginning of 2016.
Chinese selling helped push gold down more than 2 percent on Monday.
"In China, people think that the rise of the gold price is driven by a safe-haven effect," said Shu Jiang, chief analyst at Shandong Gold Group in Shanghai, noting that usually such rallies are not long-lived.
"People have reservations about such a rise."
Consumers in China, along with those in No.2 buyer India, typically purchase gold in jewelry form, hunting for bargains when prices dip or if they are confident of a sustained rally.
Bullion dealers across Asia said the Chinese were offering gold on Monday, looking to book profits with prices about $60 an ounce higher than they were before their week-long holiday.
"They bought a lot of gold when prices were in $1,000s and $1,100s, so now they are selling," said a dealer in Hong Kong. "Below $1,200, they will be buyers again."
Chinese imports rose late last year, with December imports reaching their highest since March 2013, as demand climbed amid slumping stock markets and a weakening currency.
Late 2015 imports were also supported by anticipation of buying during the Lunar New Year holiday - also known as the Spring Festival - when gold is popular as a gift.
During the Spring Festival break, gold and silver jewelry sales rose 22 percent from year-ago levels, China's ministry of commerce said over the weekend.
Demand typically slows after the holiday.
"The real challenge is now ... after the Spring Festival, how much the market could dry up," said Samson Li, senior analyst with GFMS, a metals consultancy owned by Thomson Reuters.
Consumers who bought gold over the last few years had their fingers burnt as prices fell by more than a third between 2013 and 2015.
Chinese gold demand could increase this year from 2015 only if the price rally continues or as long as prices don't make lower lows than those seen in 2015, Li said.
In December, gold prices hit their lowest in nearly six years at $1,045.85 an ounce.
(Reporting by A. Ananthalakshmi; Editing by Tom Hogue)