Gold prices slipped below $1,660 an ounce in Europe on Thursday, extending their retreat from two-week highs into a third session, as the dollar recovered from a near one-month low and crude oil prices turned lower.
Spot gold was down 0.5 percent at $1,655.70 an ounce at 12:13 SA time. It has struggled for traction after a rally early in the week sparked by Federal Reserve hints that accommodative monetary policy is set to persist.
“We see some flow from Asian buyers, both from the bank-side of the market and from physical dealers,” Credit Suisse analyst Tom Kendall said. “At the same time, there's not a huge amount of selling pressure in gold right now either, so there's a lack of meaningful direction or flow on both sides.”
He said the market attitude to gold was “fairly neutral”.
“The market positioning is quite light compared to what it has been recently,” he said. “I think we are now treading water in the gold market until the next meaningful announcement on US monetary policy, and I'd be looking forward to the next (Fed) meeting, which is on 24 and 25 April.”
The ultra-loose policy of recent years has hurt the dollar and kept real interest rates, and hence the opportunity cost of holding gold, low.
Prices are awaiting fresh direction from US data, which on Thursday includes a final reading of fourth-quarter growth, weekly jobless claims and corporate profits numbers. Strong data may undermine the case for a fresh round of monetary easing.
The dollar remained on the back foot after falling to a near one-month low in early trade against a basket of six major currencies, down 0.1 percent. A softer dollar tends to support gold, which is priced in the US unit.
Oil prices surrendered early gains to turn lower, meanwhile.
European shares and safe-haven German bunds were little changed. Traders in the euro zone are awaiting direction from an Italian debt auction later in the day, a key measure of demand for debt issued by the bloc's lower-rated states.
Gold is likely to need significant fresh support from a move in the wider financial markets, as well as a drop in the dollar, to push it to fresh highs, analysts said.
US gold futures for June delivery were down $3.00 an ounce at $1,657.90.
PURE DOLLAR CORRECTION
“We have suspected that it would take much more than a pure dollar correction for sustained gains to $1,700 and beyond, especially now that bullion is strongly correlated to the broader equity market, and risk sentiment in general,” VTB Capital said in a note.
“It comes as little surprise, with the VIX volatility index - the global risk gauge - rallying to 2.5-week highs, that gold followed other precious metals with the broader market back in risk averse mode.”
Appetite for assets seen as higher risk, like stocks and real estate, has recovered this year after a raft of forecast-beating US data, which has also curbed expectations that a fresh round of monetary easing may be imminent.
Swiss bank UBS cut its 2012 gold price forecast to $1,680 an ounce from $2,050 previously, which it said partly reflects the metal's performance in the first quarter.
“The view that the US economic recovery is looking more sustainable is becoming increasingly accepted,” it said. “As acute macro stresses abate, investors are looking at other asset classes and to the growth story once again. Gold is moving off the centre-stage position it occupied for most of last year.”
Nonetheless, the threat of a fresh downturn in the US economy and of further credit stress, as well as ongoing official sector buying, higher oil prices and the low interest rate environment, will still underpin gold, it added.
Among other precious metals, silver was down 0.5 percent at $31.86 an ounce. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, rose back towards 52 on Thursday, close to a two-month high.
Spot platinum was up 0.1 percent at $1,632.20 an ounce, while palladium was up 0.2 percent at $643.70. - Reuters