Gold prices fell on Thursday as signs that central banks may scale back their ultra-loose monetary policy pushed bond yields higher on both sides of the Atlantic, though a decline in the dollar to its lows for the year lent support.
Gold is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion. However, gains in the dollar, in which it is priced, are offsetting the impact of higher yields to keep gold rangebound.
Spot gold was down 0.4 percent at $1,244.45 an ounce at 1415 GMT, while US gold futures for August delivery were $4.90 an ounce lower at $1,244.20. "It is a battle between US dollar weakness and expectations of central banks removing monetary stimulus - US dollar weakness is supportive but the latter not," ABN Amro analyst Georgette Boele said.
"That's why we're staying close to $1,250." A raft of hawkish comments from central banks this week signalled the era of easy money, which helped gold hit record highs at $1,920.30 an ounce in 2011, might be coming to an end in more than just the United States.
Benchmark US Treasury yields and German 10-year government bond yields hit five-week highs and the euro a 14-month peak as investors geared up for the prospect of the European Central Bank scaling back its monetary stimulus programme. Comments from ECB chief Mario Draghi on Tuesday were seen as opening the door to monetary policy tweaks, while Bank of England Governor Mark Carney also raised the prospect of a UK interest rate hike in coming months this week.
Comments from two top Bank of Canada policymakers have fuelled speculation too of a rate hike next month.
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