Gold slides to three-week low on Fed rate expectations

[NEW YORK] Gold slid more than 1 per cent to a three-week low on Thursday, extending the previous day's decline, after minutes from the Federal Reserve's April policy meeting signaled that it could raise US interest rates as soon as next month.

Downward pressure briefly increased after US data showed the number of Americans filing for unemployment aid fell last week, the latest sign that the economy was regaining speed after stumbling in the first quarter. That lifted the dollar.

Spot gold was down 0.3 per cent at US$1,253.80 an ounce at 1:56 p.m. EDT (1756 GMT), off an earlier low of US$1,244.00, its weakest since April 28. It fell 1.7 per cent on Wednesday.

US gold futures for June delivery settled down 1.5 per cent at US$1,254.80 an ounce.

The latest Fed minutes indicated that the US central bank is likely to raise rates if data points to stronger second-quarter growth as well as firming inflation and employment.

"All commodities are getting hammered - silver is down 3 per cent, oil down more than 2 per cent," Commerzbank analyst Carsten Fritsch said. "It seems that a lot of speculative investments are being unwound, with the stronger US dollar as excuse."

Gold is highly sensitive to interest rate hikes, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

The metal has risen nearly 20 per cent this year on speculation the Fed will hold off from further increases on concerns over volatility in global markets. Messages from the bank on the issue have been mixed.

"Gold and silver prices have taken a big plunge on the back of falling bond prices and rallying US dollar since the release of the FOMC's last policy meeting minutes ... and the accompanying hawkish commentary from several Fed officials," said Fawad Razaqzada, technical analyst for Forex.com and City Index.

"This basically has diminished the appetite for low and non-interest-bearing assets like the euro and gold respectively." Fed vice chairman Stanley Fischer said on Thursday the United States requires faster potential economic growth in order to lift the long-run equilibrium interest rate.

Appetite for gold overnight in Asia, home of the world's biggest bullion markets, was soft.

"Bargain-hunting kept gold buoyant during early Asian trade today. However, weakness soon returned," MKS said in a note.

Among other precious metals, silver was down 2.2 per cent at US$16.47 an ounce, platinum was down 1.3 per cent to US$1,011.3 and palladium was down 2.1 per cent at US$558.90.

REUTERS