Gold prices fell towards $1,670 an ounce on Wednesday after data showing a smaller-than-expected rise in new US manufactured goods orders lifted the dollar against the euro. The metal is extending the previous day's retreat from two-week highs, as momentum sparked by expectations for further US monetary easing faded after prices failed to breach key resistance at $1,700 an ounce.
Spot gold was down 0.4 percent at $1,672.95 an ounce at 1314 GMT, while US gold futures for April delivery were down $11.80 an ounce at $1,673.10. Spot prices hit two-week highs at $1,696.20 on Tuesday after the Federal Reserve suggested a continuation of easy monetary policy may be necessary to support growth and bring down unemployment, but that momentum has proved short-lived.
"Notice how 1700/1690 held sturdy," VTB Capital analyst Andrey Kryuchenkov said. "(This is) not a massive pullback, $1,640 will certainly hold for now, but a tad more is possible." The dollar pushed into positive territory against a currency basket after the goods data at 1230 GMT, exacerbating losses in gold. The metal has a close inverse link to the dollar, weakness in which makes assets priced in the unit cheaper for other currency holders. A sharp drop in oil prices, under pressure from talk of a release of strategic oil reserves by the United States, and industrial metals eased, also weighed on bullion.
Activity on the wider markets suggested appetite for assets seen as higher risk was muted. European stocks surrendered early gains and safe-haven German bund futures firmed. Nonetheless, expectations for a continuation of super-loose monetary policy and ongoing official sector buying is supporting the medium-term outlook for gold.
"I have a positive view of gold from these levels," BNP Paribas analyst Anne-Laure Tremblay said. "Fundamentals are still supportive and we assume some form of monetary policy accommodation to take place in the United States by mid-year." Physical gold demand has come under pressure this week from an ongoing strike among jewellers in India, the world's largest bullion consumer, who are protesting against a hike in import duty for bullion.
India's Finance Minister said on Tuesday the country will not cut import duty on gold, which it doubled to 4 percent this month, although it is considering jewellers' demands for the removal of a 0.3 percent excise duty on unbranded jewellery. "The removal of the excise tax may be a step towards meeting some of the grievances listed by Indian jewellers in the wake of the government budget," said HSBC in a note.
Gold prices have struggled to make new headway after failing to break through the $1,800 an ounce level earlier this month. They remain well off the record high of $1,920.30 an ounce they hit in 2011. Goldman Sachs said in a report on Wednesday that, as gold prices are closely linked to US real interest rates, they may have been suffering from expectations for stronger growth. "The gold market may have been expecting that real rates would soon be rising along with improving economic growth, leading to a sharp decline in net speculative length in gold futures," it said. Silver down 0.6 percent at $32.28 an ounce, spot platinum was down 0.5 percent at $1,639.75 an ounce, and spot palladium was down 0.6 percent at $648.47 an ounce.