Gold prices drop on profit-taking, firmer US dollar

[BENGALURU] Gold prices fell on Thursday after hitting a 3-1/2-month high the session before, pulled down as investors took profits and as the US dollar firmed.

Spot gold was down 0.3 per cent at US$1,308.82 an ounce at 0712 GMT. US gold futures dropped 0.6 per cent to US$1,310 an ounce.

Spot gold marked its highest since Sept 15 at US$1,321.33 on Wednesday, but then dropped as the US dollar recovered from over 3-month lows. It fell further after minutes from the Federal Reserve's December policy bolstered expectations for more US interest rate hikes.

Gold, which had rallied US$85 from nearly 5-month lows hit in mid-December, posted its first day of losses in nearly three weeks on Wednesday.

"People are looking to lock in some gains after a pretty strong rally over the past weeks," said ANZ analyst Daniel Hynes.

"Geopolitical issues have certainly been a huge power point of the gold's rally into the year-end ... It is going to be a US dollar type story going forward with markets taking a neutral view." The US dollar was firm on Thursday in the wake of upbeat US data .

US factory activity increased more than expected in December, boosted by a surge in new orders growth, in a further sign of strong economic momentum at the end of 2017.

Minutes from the Fed's Dec 12-13 meeting were seen as more hawkish than anticipated, indicating the central bank is still poised to raise interest rates several times this year.

The minutes suggested that the central bank would continue to pursue a gradual approach in raising rates but could pick up the pace if inflation accelerates.

Gold is highly sensitive to rising US interest rates as they increase the opportunity cost of holding non-yielding bullion, while boosting the US dollar, in which it is priced.

"We still feel that gold has come a long way and may correct a little further from here," MKS PAMP trader Alex Thorndike said.

"That being said we view a pullback towards US$1,290-US$1,295 as a decent buying opportunity." Spot silver fell 0.6 per cent to US$17 an ounce, after hitting a six-week high on Wednesday at US$17.24.

Spot platinum was down over 1 per cent at US$943 an ounce.

Spot palladium rose 0.4 per cent to US$1,086.95. It touched an all-time high on Tuesday at US$1,096.50.

REUTERS