LONDON: Gold fell nearly 1 percent to a five-week low on Wednesday as the dollar firmed, equity markets strengthened and the US economy showed signs of recovery, while support from physical buying also was lacking.
Spot gold was down 0.6 percent at $1,302.60 an ounce by 1508 GMT, having fallen to $1,300.09 in earlier trade, its lowest since mid-February. US gold futures were down $7.80 an ounce at $1,303.60.
Prices touched a six-month high of $1,391.76 early last week as mounting political tensions and fears over slowing economic growth spurred demand for the metal as an insurance against risk.
But comments from US Federal Reserve Chair Janet Yellen later in the week, which suggested interest rates could rise in the first half of 2015, raised the opportunity cost of holding non-yielding bullion and sparked a sharp retracement in prices.
"Funds bought it quite aggressively over the past few weeks, and although there has been liquidation, I think they are still long," David Govett, Marex Spectron's head of precious metals, said.
"(We have) option expiry this evening on Comex and the biggest strike is 1300. (Gold) often has an uncanny knack on expiry days of heading to the main strike, which is what we are doing. A lack of any fresh news or outside influences and no physical demand means no support."
European shares rose to two-week highs on Wednesday, with sentiment buoyed by stronger US data as well as optimism over possible stimulus measures in the euro zone and China.
The dollar index, which measures the unit against six major currencies, also rose after data showed that orders for long-lasting US manufactured goods rebounded in February and shipments snapped two straight months of declines.
ASIA DEMAND SLOW
The drop in gold prices failed to ignite a rush in physical buying, with dealers in Hong Kong complaining about a slowdown in demand from jewellers and retail investors from mainland China.
In a sign of tepid physical demand, premiums for gold bars in Asia were little changed at between 25 cents and $1 an ounce to spot London prices this week, partly due to concerns that a weak yuan could hurt demand from main consumer China.
"Some very light Chinese buying following the Shanghai Gold Exchange open was seen this morning, but when comparing this to the volumes that were seen earlier this year and late last year, it is a little disappointing," Swiss gold trading house MKS said in a note.
Russia increased its gold holdings by 7.247 tonnes to 1,041.96 tonnes in February, and Turkey also raised its bullion reserves after a sharp fall the previous month, data from the International Monetary Fund showed.
Elsewhere, silver was down 0.7 percent to $19.79 an ounce, and palladium was down 0.4 percent at $778.25 an ounce. Platinum was down 0.9 percent to $1,399.70 an ounce.
The chief executive of world No. 3 platinum producer Lonmin has told staff to take voluntary leave because a wage strike now entering its 10th week at its South African operations looked set to continue.
South Africa's government mediator said it would meet with the striking Association of Mineworkers and Construction Union (AMCU) on Wednesday to restart talks aimed at ending a crippling platinum strike now entering its tenth week.
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