Gold rose in choppy trade on Thursday, as the gyrations in the US dollar put the price on track for its most volatile session in two weeks while investors weighed up the outlook for US economic growth. Weekly US jobless data signalled the economy is recovering, which boosted risk appetite and knocked the dollar, while in the eurozone, concern over Ireland's finances stopped the euro from drawing strength from the greenback's decline.
Gold swung from intraday gains of nearly 1 percent to a loss of 0.2 percent in the most volatile trading session since November 25, according to Reuters data. Gold, which hit a record high earlier this week, has come under pressure as the dollar has benefited from greater yield appeal and the perception that US government efforts will result in longer-term growth.
The metal is set for its largest weekly fall since late October. Spot gold was last quoted at $1,384.15 an ounce at 1615 GMT, up 0.2 percent on the day, having fallen for two consecutive days away from Tuesday's $1,430.95 record high. US February gold futures reversed earlier losses to rise $2.1 an ounce to $1,385.40. "We suggested recently that higher interest rates pose one of the more significant potential headwinds for spot gold prices, and the sharp rise in yields to six-month highs does appear to be slowing gold's recent ascent," said Nic Brown, Natixis commodities strategist.
The so-called opportunity cost of owning gold - the yield investors forfeit for holding a non-interest bearing asset - rises in tandem with bond yields and investors have seen that cost automatically spiral this week as Treasuries have fallen. The pressure on Treasuries resumed on Thursday after weekly unemployment data showed the four-week moving average of initial jobless claims held at two-year lows.
"The bias is certainly towards risk-on again and it's a function of having a couple of points of (US economic) growth added on because of the extension of the...tax cuts," said Daniel Brebner, a strategist at Deutsche Bank. "There's certainly lots of risk around, debt is becoming an issue in both Europe and the US but right now, the macroeconomic policy is towards growth and I think the market is reflecting that."
Gold hit its peak on Tuesday, fuelled by a flurry of fund-buying ahead of the year-end and a resurgence in risk aversion stemming from Europe's deepening debt crisis, which has pummelled the government bonds of the eurozone's most economically fragile members. With the 3 percent decline seen over the last three days however, physical demand has resurfaced, particularly in Asia, where premiums for physical delivery in Hong Kong held steady, while scrap supply was muted.
Reflecting the lack of investor appetite for gold this week was a fourth successive decline in holdings of metal in the SPDR Gold Trust, the world's largest exchange-traded fund backed by physical bullion. Spot silver rallied 1.2 percent to $28.68 an ounce, after declining to a one-week low of $27.96 on Wednesday. Platinum fell 0.6 percent to $1,671 an ounce, while palladium rose 2.0 percent to $738.72, taking some heart from the rise in other industrial commodities such as crude oil and base metals.