Gold dropped to its lowest price in nearly10 months on Thursday as the dollar held firm around 9-1/2 month highs against the yen, boosted by inflation expectations, while growing odds of a US interest rate hike also added pressure.
Spot gold was down 0.4 per cent at $1,168.60 an ounce by 0236 GMT. The metal hit its lowest since February 5 at $1,163.45 earlier. US gold futures dropped 0.3 per cent to $1,167.20 per ounce.
The US dollar was broadly firm, hitting 9-1/2 month highs against the yen, as oil prices surged after OPEC agreed for output cuts - lifting inflation expectations and US bond yields.
“Gold has been sensitive to the US monetary policy and dollar movements,” said Mark To, head of research at Hong Kong'sWing Fung Financial Group.
“Inflation as well as pace of interest rate hike expectations among the investors are increasing along with the opportunity cost of holding gold.”
“That’s why gold is coming under selling pressure,” To said.
“The trading range is moving lower and it is still going to move down further south to $1,148.”
Strong US data on Wednesday pointed to economic strength which could further cement the case for an interest rate hike from the Federal Reserve this month.
Dallas Fed Bank President Robert Kaplan had suggested on Wednesday it was time for an interest-rate raise as the US economy was making good progress towards full employment with inflation heading toward the Fedruary’s 2 per cent goal.
The Fed next meets on December 14-15 and traders see about a 90 per cent chance that policymakers will raise rates then.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.
Elsewhere, political uncertainty in Europe persisted ahead of Italy’s referendum on Sunday, capping the euro, while European Central Bank (ECB) President Mario Draghi warned of risks to the continent’s prosperity.
Euro zone inflation hit a 31-month high in November, providing modest relief for the ECB ahead of an interest-rate decision next week.
SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.13 per cent to 883.86 tonnes on Wednesday.
“In the near term, a strong US dollar, equity gains, and higher bond yields sentiment are likely to weigh on silver,’’ said James Steel, chief metals analyst for HSBC Securities.
Silver fell 0.7 per cent to $16.36 an ounce, while platinum dipped 0.66 per cent to $905. Palladium eased 0.5 per cent to $765.97.
The metal touched its highest since June 2015 at $774.20 in the previous session.