Gold was trading close to a three-week low on Wednesday as strong US economic growth boosted equities and the dollar, weakening safe-haven bids for bullion.

Data on Tuesday showed the US economy grew at a 5.0 per cent clip in the third quarter, its quickest pace in 11 years and the strongest sign yet that growth has decisively shifted into higher gear.

Both the Dow and the S&P 500 hit record closing highs on Tuesday after the GDP report, with Asian stocks following their lead on Wednesday.

The dollar index climbed to its highest in nearly nine years. Stronger equities and the dollar reduce the demand for bullion, often seen as an alternative investment to riskier assets.

The robust data could also prompt the Federal Reserve to raise interest rates soon, a factor that would hurt non-interest-bearing gold.

Spot gold was firm at $1,177.71 an ounce by 0319 GMT, but close to a three-week low of $1,170.17 hit on Monday. Any dip below that level could trigger further losses.

“Markets are likely to trade quietly ahead of the Christmas holidays,’’ said Jason Cerisola, a metals dealer at MKS Group.

“$1,170 continues to be the key level on the downside, with market chatter of large stop loss orders sitting below.’’

Thin liquidity

Thin liquidity due to the Christmas holiday could also exaggerate any price moves. Momentum indicators are bearish, and a break below $1,172 would increase the likelihood of a full retracement to November lows near $1,130, technical analysts at ScotiaMocatta said.

Gold is headed for a second consecutive year of declines, though the 2 per cent loss this year pales in comparison to the 28 per cent plunge in 2013.

Optimistic outlook for the US economy and the dollar, and the prospect of higher interest rates have hurt the yellow metal.

Holdings of the world’s top gold-backed exchange traded fund, SPDR Gold Trust, are near six-year lows, reflecting weak investment sentiment towards bullion. Physical demand in top consuming region Asia has dipped from record levels seen last year.

Among other precious metals, silver and platinum were also headed for annual declines, while palladium was eyeing a third straight yearly increase due to supply concerns from producer Russia.

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