Gold prices hovered near five-week lows on Thursday as a stronger US dollar and lofty US bond yields dampened interest in bullion. Spot gold dropped 0.4 percent at $1,317.31 per ounce by 1:40 p.m. EDT (1740 GMT), while US gold June futures settled down $4.90, or 0.4 percent, at $1,317.90.
"It's interesting to see yields up, but the dollar strength is really what's following through," said Rob Haworth, senior investment strategist for US Bank Wealth Management. Worries about the growing supply of US government debt and inflationary pressures from rising oil prices this week pushed US 10-year note yields above 3 percent for the first time in four years.
That reduced the appeal of gold, which does not pay yields, and helped thrust the dollar to its strongest since January, making bullion more expensive for holders of other currencies. Interest from physical buyers and technical support at gold's 100-day moving average, $1,319.51, was helping to prevent further falls.
"At these low (price) levels, the market could now attract some physical buying interest," said Peter Fung, head of dealing at Wing Fung Precious Metals. "The market has a very good (physical) support at around $1,310-$1,315." Gold has been supported by geopolitical uncertainty, which has fueled demand as a safe haven, but prevented gold from moving higher in fears of rising US interest rates that would push up bond yields and strengthen the dollar.
US GDP and inflation data on Friday could give new direction to prices, said Mitsubishi analyst Jonathan Butler. Stronger-than-expected economic growth or inflation would hurt gold by bolstering expectations of more rapid increases in interest rates. However, "when rates hit these highs in the longer term, it is inflationary, and sometimes you see that flight back to gold," said Mike O'Donnell, senior market strategist at RJO Futures. Analysts and traders polled by Reuters this month said gold would average $1,334 an ounce this year and $1,352 an ounce next year, barely shifting from its current price.
They expected silver, which was up 0.1 percent at $16.54 an ounce on Thursday, to fare better, averaging $17.28 an ounce this year and $18 next year. Silver dropped to a more than two-week low at $16.41. Meanwhile, platinum rose 0.4 percent at $909.10 per ounce after earlier hitting more than a four-month low at $901. Palladium rose 0.9 percent at $986.20 per ounce.
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