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Gold bounces off lows, still pressured by stronger dollar

Oil slumped more than 1 per cent on Thursday, touching two-week lows under pressure from a retreating stock market and worries about surging US crude output.

[NEW YORK] Gold prices fell about 1 per cent on Thursday and hit two-month lows during the session, pressured as the dollar shot to a six-week high and investors braced for expected US interest rate hikes after Federal Reserve Chairman Jerome Powell testified before Congress this week.

Gold was on track for its third straight daily decline. Palladium and platinum both hit two-month lows, extending losses that began earlier this week when a German court ruled that cities can ban the most heavily polluting diesel cars from their streets. Diesel-burning autos use those metals as autocatalysts.

Spot gold fell 0.9 per cent at US$1,306.44 per ounce by 1.42pm EST (18:2 GMT), while US gold futures for April delivery settled down US$12.70, or 1 per cent, at US$1,305.20. Spot prices earlier hit their weakest since Jan 2 at US$1,304.61.

Gold bounced off session lows after Federal Reserve Chair Jerome Powell told the Senate Banking Committee the US central bank did not see evidence of a decisive advance in wages.

His remarks tempered some market concerns after his testimony on Tuesday sparked worries about more interest rate hikes, sending gold lower.

Higher interest rates discourage investing in gold, which does not bear interest.

Still, the dollar rose after solid US economic data stoked expectations the Fed could raise interest rates as many as four times this year. A stronger dollar pressures gold, making it more expensive for holders of other currencies.

"We're down on the stronger dollar today, and we're still hearing interest rate expectations. The euro slipped after European inflation numbers showed inflation was not picking up as much as expected," said Chris Gaffney, president of world markets at EverBank.

But Mr Powell's latest comments struck a more dovish tone, Mr Gaffney said. Still, the dollar kept near its six-week high.

Capital Economics analyst Simona Gambarini said that as inflationary pressures build, the Fed will hike interest rates by more to prevent inflation from accelerating.

From a technical perspective, gold was on the defensive after again failing to break above resistance at US$1,362 an ounce in mid-February, Commerzbank said in a note.

Silver dropped 0.7 per cent to US$16.29 an ounce, hitting US$16.16, its lowest since Dec 22.

Platinum was down 2.8 per cent at US$955.90 per ounce after touching a two-month low at US$950.50 and palladium dropped 6.3 per cent to US$976.97, touching a 2-1/2 week low of US$976.

In addition to worries about a potential clampdown on diesel vehicles in Germany, "the overall lack of growth in the European economy may also be weighing," Mr Gaffney said.