Gold extended earlier losses on Thursday as US economic data added to feverish speculation on the possible timing of scaled-back US Federal Reserve monetary stimulus. US stock futures turned positive and US bonds pared gains, while the dollar arrested falls versus the yen as US retail sales rose more than expected and jobless claims dropped in the latest week. The data was seen as adding to arguments for the Fed to end its $85-billion monthly bond purchases.
"It's the old argument that when you foresee rate rises then the opportunity cost of holding gold will be higher and less attractive for investors," Danske Bank annalist Christin Tuxen. "There's another thing coming into play - break-even inflation has started to trend lower... you may not want to hold gold if the inflation story is starting to wane," she added.
Spot gold was down 0.7 percent at $1,379.16 an ounce by 1307 GMT. US gold fell 0.9 percent to $1,378.05. Silver, platinum and palladium all fell. Stimulus unwinding is likely to spell further downside for gold, which is struggling to stay on an even keel with fund money draining away from the metal since prices crashed in April. Bullion is now some 27 percent down from record highs achieved in September 2011.
Markets will watch the Fed policy meeting on June 18 and 19. Most economists expect the Fed to scale back the size of its bond purchases by year-end, and several expect reduced buying as early as September, a Reuters poll showed. Spot gold is expected to test resistance at $1,402 per ounce, a break above which would lead to a further gain to $1,410, Reuters technical analyst Wang Tao said. Demand from major buyer China, which returned from a three-day holiday on Thursday, held losses in check.
China has been a big factor in holding up gold prices, even as demand in India, the biggest buyer of the precious metal, has cooled and investors have dumped holdings in exchange-traded funds. "The physical side of the market is doing ok in the Middle East and Far East but has gone very quiet in India," Credit Suisse analyst Tom Kendall said.
Indian gold demand remained subdued, and importers and wholesalers struggled to sell supplies from May. The government has raised the import duty on gold by a third and curbed gold financing by banks and others in an effort to cut its current account deficit. Net gold imports into India have fallen from an average of $135 million in the first half of May to $36 million in the second half, Finance Minister P. Chidambaram said on Thursday.