Gold prices fell on Thursday as signs that central banks may scale back their ultra-loose monetary policy pushed bond yields higher on both sides of the Atlantic, though a decline in the dollar to its lows for the year lent support. Gold is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion. However, losses in the dollar, in which it is priced, have been offsetting the impact of higher yields to keep gold rangebound.
Spot gold was down 0.3 percent at $1,245.34 an ounce by 2:25 p.m. EDT (1825 GMT), while US gold futures for August delivery settled down 0.3 percent at $1,245.80. "It is a battle between US dollar weakness and expectations of central banks removing monetary stimulus. US dollar weakness is supportive but the latter not," ABN Amro analyst Georgette Boele said.
A raft of hawkish comments from central banks this week signaled the era of easy money, which helped gold hit record highs at $1,920.30 an ounce in 2011, might be coming to an end in more places than just the United States. Benchmark US Treasury yields and German 10-year government bond yields hit five-week highs and the euro touched a 14-month peak as investors geared up for the prospect of the European Central Bank scaling back monetary stimulus.
Traders were also reevaluating the prospects for US President Donald Trump's policy agenda. "With part of Trump's travel ban going back into effect, there may be a partial re-pricing of the rest of Trump's agenda (ie, economic reform) in the market, this time to gold's detriment," RBC Capital Markets said in a research note.
"That could either be helped or hurt by how the latest in the long-running healthcare legislation saga plays out, but we think the interplay between politics and economics remains at the forefront for the gold market." Gold is poised to end the second quarter less than $5 an ounce from where it began, its flattest quarterly performance in more than two years.