Gold tumbled by more than two percent on Thursday to its lowest level since early May as the dollar extended gains against the euro after the release of above consensus data from the United States. Spot gold fell to $856.80 an ounce, the lowest since May 2, as the dollar rose after data showed US retail sales jumped by one percent in May.
The news reinforced growing perceptions that US interest rates may have bottomed and that the next move by the US Federal Reserve would be a hike, possibly later this year.
Gold was down at $861.10/862.25 an ounce at 1314 GMT from $881.15/882.55 late in New York on Wednesday. US gold futures also fell to a 1-1/2 month low of $859.60 an ounce and were last down $18.9 at $864 an ounce.
"The shape of the trendline for gold prices is currently very dependent on the US dollar, although the amplitudes of the swings are relatively low," said Eugen Weinberg, commodities analyst at Commerzbank. Anti-inflation rhetoric by a Fed official also helped the dollar earlier on Thursday. Gold has see-sawed this week in line with the dollar and crude oil prices.
"We are seeing gold tracking forex ... There is so much uncertainty regarding inflation and where crude oil is going," said Standard Bank analyst Walter de Wet. Falling crude prices are pressuring gold, which is often bought as a hedge against oil-led inflation. But with prices still firm over $130 a barrel and within reach of the all-time high they set last week, "crude oil definitely provides a floor in gold prices", said de Wet.
Forex, however, remains the main driver. The dollar has taken a firmer tone this week after a raft of comments from US officials expressing concern over the currency's weakness. US Federal Reserve Chairman Ben Bernanke's increased emphasis on rising inflation has been interpreted as a sign that an interest rate hike may be on the cards later this year.
However, with expectations for a eurozone rate hike also rising, currency markets have been volatile this week, leading to similar fluctuations in gold. Platinum tracked gold lower to $1,993/2,013 against 2,032.50/2,052.50 on Wednesday. The white metal has largely moved in tandem with gold as the dollar has fluctuated, but is also benefiting from fears over supply from major producer South Africa.
Platinum therefore "looks likely to outperform gold as dollar strengthens", Fairfax IS analyst John Meyer said. Palladium was softer at $423/431 an ounce against 424.00/432.00 an ounce, while silver slipped to $16.37/16.45 from $16.88/16.95.
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