US gold futures hit a one-week low and finished nearly $10 lower in volatile trade on Thursday, as the dollar's strength, rising US Treasury yields and a sagging stock market hurt bullion investor sentiment.
Dealers said that worries about possible interest rate hikes, chart-based sell stops and sales by funds accelerated the decline on Thursday.
Most-active August gold on the Comex division of the New York Mercantile Exchange settled down $9.40, or 1.4 percent, at $665.20 an ounce.
The contract peaked at $678 and bottomed at $662.50, which marked the weakest level since May 31. George Gero, vice president at RBC Capital Markets Global Futures, cited surging Treasury yields, unwinding of carry trades and sell stops by funds for gold's sharp decline.
"Higher yields, more inflation-fighting resolve by various central banks as well as bullion sales are dampening the longs' outlook," Gero said in a note.
Market watchers said the unwinding of yen carry trades in which investors borrow cheaply in low-yielding currency like the yen to fund purchases of higher-yielding currencies and assets also prompted sales in gold.
The dollar rose against most major currencies on Thursday as expectations for solid global economic growth launched US government debt yields above 5 percent. US Treasury bond yields across the board reached or broke the 5 percent mark on Thursday the first time the entire yield curve was at or above that threshold since July.
Frank McGhee, head precious metals dealer at Integrated Brokerage Services in Chicago, said a change in bullion investor sentiment was weighing on gold.
McGhee said the massive build-up of sell stops triggered Thursday's sell-off. Comex traders also said that options trading has been bearish of late, and funds have bought a number of put options, a sign that underlying futures could test lower prices in the short run.
Comex estimated final gold volume at a heavy 103,592 lots and options turnover at 26,587 lots. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 39,819 lots as of 3:01 pm James Moore, analyst at TheBullionDesk.com, said in a note that expectations of further gold sales by the various European central banks dampened sentiment and rising interest rates in Europe drew investor interest back towards treasuries.
British interest rates stayed at a six-year high of 5.5 percent on Thursday but the Bank of England is expected to raise them in the next few months.
This followed the European Central Bank's decision to lift euro-zone rates to 4 percent as expected on Wednesday, and markets expect at least one more hike this year.
"However, fundamentals such as declining mine production and strong physical demand, coupled with increasing institutional investor dissatisfaction towards the dollar are extremely supportive for the longer-term bull trend," Moore said.
Official data showed that South African gold output fell 8.2 percent in volume terms, while overall minerals production increased 0.6 percent, in April, compared with the same month the previous year. Spot gold traded at $659.50/0.00 an ounce, sharply lower than $669.20/0.70 late on Wednesday. The London afternoon gold fix was $668.75. Comex July silver closed down 23.70 cent, or 1.7 percent, at $13.480 an ounce, after trading between $13.430 and $13.820.
Spot silver was quoted at $13.44/13.47, compared with $13.68/13.72 late on Wednesday. The London silver fix was $13.65. Nymex July platinum ended down $4.60 at $1,295.50 an ounce. Spot platinum was quoted at $1,287/1,293 September palladium fell $2.45 to finish at $372.45 an ounce. Spot palladium fetched $366/370.