Gold fell by about 1 percent on Monday, following last week's 7 percent decline, hurt by a stronger dollar and due to worries over an early end to the US Federal Reserve's stimulus programme. The metal sank back towards a three-year low hit last week in a sharp sell-off triggered when the Fed said it would cut back its monetary easing by mid-2014, which supported interest rates and therefore made gold comparatively less attractive.
Spot gold lost 0.9 percent to $1,284.80 an ounce by 1351 GMT after its worst weekly performance last week since September 2011 pushed the price as low as $1,268.89. It is down 24 percent so far this year. Comex gold futures for August delivery fell $7.50 to $1,284.50 an ounce.
"Sentiment now is overwhelmingly negative towards anything except the dollar and it looks like it is going to stay that way," Marex Spectron head of precious metals David Govett said. "The only thing that is saving the market at the moment is that there isn't that much business to be done anymore, the big sellers have been in already and there is no more selling around to push it lower," he added. "I think we can consolidate between $1,270 and $1,310 for the time being."
The dollar traded near its highest in nearly three weeks against a basket of currencies, bolstered by expectations the Fed was considering scaling back its $85 billion monthly bond purchases. The Fed's remarks helped push up the benchmark 10-year US Treasury yield to its highest in almost two years at above 2.5 percent. Given that gold pays no interest, the rise in returns from US bonds and other markets is seen as a negative signal.
Gold was also hurt as interest rates for short-term funds in China rose to extraordinary levels last week after big commercial banks held back on lending in the interbank market. Goldman Sachs cut its year-end 2013 gold price forecast to $1,300 an ounce from $1,435.
Hedge funds and money managers slashed their bullish bets in gold futures and options for a second consecutive week to the lowest level in a month, a report by the Commodity Futures Trading Commission showed.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell a further 0.54 percent to 989.94 tonnes on Friday, the lowest in over four years. Physical demand was muted in the world's top two gold consumers, India and China, unlike mid-April when the drop in gold prices attracted a rush for the metal, pushing up premiums and tightening supplies. Silver fell 1.6 percent to $19.76 an ounce, having reached a near-three year low of $19.35 last week.
Investment bank UBS lowered its 2013 outlook for silver to $24 an ounce from $29 previously, saying it would be hit as sentiment towards gold sours and silver has no drivers of its own. Platinum fell 1.4 percent to $1,355.99 an ounce and palladium was down 1.1 percent to $665.72 an ounce.