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Gold extended losses into a second day on Thursday, falling almost one per cent as higher bond yields dented its investment appeal, while uncertainty over the timing of a US rate hike also weighed.
Spot gold fell 0.7 per cent to $1,183.18 an ounce by 0957 GMT, holding below the key $1,200 level for a fifth day. US gold futures for June delivery dropped $8.80 to$1,181.40 an ounce.
“The fact that we’ve got this back-up in long-term real yields would suggest to me that the risk is still to the downside for gold,’’ Deutsche Bank analyst Michael Lewis said.
“However, we probably want to see real yields going higher along with dollar strength to get gold out of the current trading range and lower.’’
Gold has been trading in a relatively narrow $80 an ounce trading range between $1,142 and $1,224 since mid-February, compared to a range of around $150 in January.
Deflation fears
Bond yields in Europe and the United States have been rising as deflation fears ease on recovering oil prices and in anticipation of an interest rate hike by the US Federal Reserve later this year.
As gold pays no interest, the rise in returns from US bonds and other markets is seen as negative for the metal.
Germany’s 10-year government bond yield hit a 2015 high on Wednesday, while the 10-year US Treasury yield rose to a two-month high.
Yellen’s warning
Fed Chair Janet Yellen warned that low long-term US interest rates could rise as the Fed normalises its policy, causing disruption across the financial system.
“Yellen’s comments that bond yields could see a sharp jump continued to weigh on gold,’’ ANZ said in a note.
Gold failed to capitalise on a softer dollar, disappointing US economic reports and lower European equities, raising concerns about possible further declines, traders said.
US jobs report
Data on Wednesday showed US private employers hired the fewest number of workers in more than a year in April.
Investors are focussed on Friday’s US nonfarm payrolls for April in search for a clearer picture of the economy.
Strong data could prompt the Fed to soon hike rates, a move that could hurt the demand for non-interest-paying gold.
Fed rate hike
Atlanta Fed bank president Dennis Lockhart had said on Wednesday he still feels conditions would be in place for a midyear US rate hike despite a weak start to 2015, and that markets betting on a September increase were in “reasonable alignment’’ with the central bank.
Silver fell 1.1 per cent to $16.31 an ounce. Platinum dropped 0.8 per cent to $1,131.75 an ounce, while palladium was down 0.3 per cent at $786.50 an ounce.
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