LONDON: Gold prices fell on Thursday, extending the previous session's 2 percent sell-off, as a break of key chart support near $1,320 an ounce prompted more buyers to cash in gains, and as physical demand eased at higher prices.
The precious metal rallied for four straight sessions to Tuesday, hitting its highest in a month, after assurances from the Federal Reserve that any changes to its gold-friendly quantitative easing policy would be data-dependent.
Well-received US housing data released on Wednesday helped knock prices sharply lower, however. A failure to hold onto gains spooked investors, prompting further liquidation, especially with physical demand muted at higher prices.
Spot gold was down 0.7 percent at $1,311.20 an ounce at 0958 GMT, while US gold futures for August delivery were down $8.30 an ounce at $1,311.20.
"The selling gained speed after support at $1,321 broke once again," Heraeus trader Alexander Zumpfe said. "It failed to deliver sufficient support already yesterday evening, but finally the metal managed to close above it. Today the break through that level looks a bit stronger."
On the wider markets, the dollar was little changed, giving scant direction to gold, but a retreat in other commodities weighed.
The markets are awaiting fresh clues from the Fed on the outlook for its QE programme, which helped fuel a rally in gold prices to record highs in recent years by keeping up pressure on long-term interest rates and fuelling fears over inflation.
The US central bank meets next Tuesday and Wednesday, with a statement on policy due at the end of the session. Ahead of that data including today's weekly jobless claims numbers at 1230 GMT will be closely watched.
"Yesterday's good US housing data certainly took the edge off gold," Standard Bank analyst Walter de Wet said. "Demand out of China is still strong, but with gold at $1,340, it is not as strong as it was below $1,300, so we don't have that strong support."
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