Gold fell early on Thursday on a dollar rally and frustrations over a lack of more aggressive market stimulus from central banks after China, Europe and Britain eased their monetary policies. Bullion, which has tumbled several times this year after the Federal Reserve did not mention easing, was under pressure again after the top three central banks loosened monetary policy and signalled a growing level of alarm about the world economy.
Gold's inflation-hedge appeal was weakened by the prospect of a global economic slowdown. "Deflation at this particular point is the overwhelming worry," said Frank McGhee, head precious metals traders at IBS Metals. Still, gold has gained almost 4 percent since last Friday on hopes of more Fed action after data showed US manufacturing shrank in June for the first time in nearly three years.
Some dealers also stayed on the sidelines ahead of Friday's closely watched US nonfarm payrolls report. "If the job numbers coming out tomorrow are better than expected, then you eliminate or start to change the psychology of any imminent Fed action," McGhee said. Spot gold was down 0.5 percent at $1,607.69 an ounce by 2:27 pm EDT (1827 GMT).
US gold futures for August delivery settled down $12.40 at $1,609.40 an ounce. Trading volume after Wednesday's US Independence Day holiday was about 10 percent below average, preliminary Reuters data showed. The metal initially rose to a session high of $1,623.80 after China unexpectedly lowered its lending rate to 6 percent, but the rally fizzled as investors worried the better-than-expected jobs data might kill any hopes of more Fed action.
Gold has been particularly sensitive to central banks' monetary policies. In February, it was up 15 percent for the year after the Fed said it would keep interest rates near zero until late 2014. On Thursday, bullion is only up less than 3 percent. Silver dropped 1.3 percent to $27.74 an ounce. A US employment report on Thursday showed private-sector employers added 176,000 jobs in June, topping economists' expectations and could bode well for employment data on Friday.
In India, one of the world's leading consumers of gold, demand for the metal remained weak as a recent drop in the rupee to record lows made local gold prices expensive during a traditionally lean buying season. Among platinum group metals, platinum eased 65 cents to $1,472.08, and palladium inched down 0.1 percent to $577.75.
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