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[SINGAPORE] Gold extended losses into a second session on Thursday as higher bond yields dented the investment appeal of the metal, while uncertainty over the timing of a US rate hike also weighed.
Spot gold fell 0.4 per cent to US$1,186.95 an ounce by 0416 GMT, after losing 0.1 per cent in the previous session, holding below the key US$1,200 level for a fifth day.
Bond yields in Europe and the United States have been rising as deflation fears have eased with recovering oil prices, and in anticipation of a interest rate hike by the US Federal Reserve later this year.
Higher bond yields undercut gold's appeal as the metal does not pay any interest.
Germany's 10-year government bond yield hit a 2015 high on Wednesday, while the 10-year US Treasury yield rose to a two-month high.
Fed Chair Janet Yellen warned that low long-term US interest rates could rise as the Fed normalises its policy, causing disruption across the financial system.
"Yellen's comments that bond yields could see a sharp jump continued to weigh on gold," ANZ analysts said in a note.
Gold's failure to hold onto recent gains near US$1,200, despite weakness in the dollar and equities, have raised concerns and signals further declines, traders said.
"The inability of gold to rally in the face of a weaker dollar may indicate underlying weakness," said HSBC analyst James Steel.
The dollar languished at its lowest in over two months against a basket of major currencies, after data showed US private employers hired the fewest number of workers in more than a year in April.
Weakness in economic data and the greenback typically boosts safe-haven bids for bullion, but that failed to materialise.
Investors are focussed on the critical US nonfarm payrolls data on Friday for stronger cues about the economy and its impact on the timing of an interest rate hike.
Strong data could prompt the Fed to soon hike rates, a move that could hurt demand for non-interest-paying gold.
Markets had expected a hike in June, but recent data showing a sluggish economy has made investors push back expectations.
Atlanta Fed bank president Dennis Lockhart said on Wednesday he still feels conditions would be in place for a midyear US rate hike despite a weak start to 2015, and that markets betting on a September increase were in "reasonable alignment" with the central bank.