Gold fell on Thursday to its lowest price in more than two months, as worries about continued contraction in manufacturing in both the euro zone and China triggered a broad sell-off. Bullion, which has taken to follow riskier assets, was pressured as data showed China's manufacturing sector activity shrank in March for a fifth-successive month, and in Europe, manufacturing in the euro zone contracted further.
That more than offset a four-year low in US initial jobless claims. The metal, which was $150 lower than its February 29 peak of about $1,800 an ounce, has been hit by fading hopes of more US monetary easing and a better US economic outlook. The decline reflected recent massive outflow from bullion exchange-traded funds and some funds exiting the gold trade.
"Gold's been 100 percent focused on the China slowdown," said Jeffrey Sica, chief investment officer of SICA Wealth Management with more than $1 billion in assets.
"The sell-off in gold I think is overdone. It's been tagged to the strength of the dollar and whether there will be further economic stimulus," and price volatility will rise even though global economic worries and geopolitical tensions should underpin the metal, Sica said. Spot gold was down 0.7 percent at $1,637.60 an ounce by 12:47 pm EST (1647 GMT).
The metal earlier hit a low of $1,627.68, its weakest since January 13. Gold has given back the gains in January that had been based on expectations of further US monetary easing, as the Federal Reserve has offered few clues on any further action. US gold futures were down $12.40 at $1,637.90. Losses in spot silver outpaced those in gold, with the metal shedding 2.9 percent to $31.20 an ounce.
Analysts expected that with a reassessment of global economic health, despite slightly improved US data, gold prices might give way further. "At the moment I can't see any (price-supportive news) so we should prepare for lower gold prices," Commerzbank analyst Daniel Briesemann said.
Physical buying was particularly quiet in Asia as disappointing China's manufacturing data fanned concerns about China's retail gold appetite. A Hong Kong-based gold dealer said that Asian investors may choose not to buy gold if Chinese growth slows and inflation eases. In India, the world's largest gold consumer, jewellers have been closed since the weekend in protest against an import duty increase on bullion.
James Steel, chief commodity analyst at HSBC, said that the level of pent-up gold demand in India will be an important factor for the future direction of gold prices. The recent economic optimism helped platinum regain its premium over gold earlier in the month. But the spread flipped to a discount again this week, with gold standing roughly $30 above platinum. Spot platinum traded down 1.6 percent at $1,607.74 an ounce, and spot palladium dropped 4.5 percent to $649.97 as the metal unwound sharp recent gains driven by supply worries and better global economic sentiment.