LONDON: Gold was set for its biggest daily fall in over a month on Thursday after a surprisingly large rise in weekly US jobless claims hit investor risk appetite, pummelling commodities and stocks and boosting the dollar.
Gold was already in negative territory earlier in the day after the US Federal Reserve cut its forecasts for US growth but did not suggest it would conduct a third round of quantitative easing, while the uncertainty over a resolution for the Greek debt crisis hurt the euro.
US data that showed initial claims for unemployment benefit rose much more than expected last week served as a reminder to investors of the Fed's commitment to keeping interest rates low because of the sluggishness in the economy.
Gold would normally benefit from such uncertainty over the economic outlook but this aversion to risk stripped 5 percent off the crude oil price, dented base metals and weighed on higher-yielding currencies.
Spot gold priced in dollars was last down 1.6 percent on the day at $1,524.75 an ounce by 1325 GMT, and bullion priced in other currencies such as euros, sterling and Swiss francs also came under pressure.
"I liken it to the ugly contest -- which is the least ugly. The least ugly is gold if you treat it as a currency, and the ugliest is possibly the euro or maybe sterling. So the dollar is fairly pretty by comparison," said Credit Agricole analyst Robin Bhar.
"Clearly the Fed isn't going to shrink its balance sheet in a hurry. At the same time, they won't do more QE for the moment, so that's helping the dollar," he said.
The gold price has surrendered all its gains this week and is now set for a 1-percent fall, which would be its largest weekly decline since the so-called commodities "flash crash" in early May that hammered raw material prices.
The price of gold is some 2 percent south of early May's record highs as the near-3.5 percent rise in the dollar since then has hampered any rallies, although gold in sterling has hit record highs this week and gold in euros has neared its recent all-time peaks.
Gold's dependency on the dollar and the outlook for US interest rates looks likely to remain intact.
"Bernanke is in no hurry to raise rates and, at the same time, rising inflation is beginning to be a bit of a concern, so on that basis, QE3 is out of the question," said Saxo Bank senior manager Ole Hansen.
"In that sense, gold is finding it a bit difficult to perform and over the last couple of days, when we almost reached boiling point earlier in the week with the Greek crisis, that didn't do enough to bring us above $1,550. So the fact that we made it there and very quickly failed could indicate that we are indeed in this summer period, which generally is not a favourable time of year for the sector as a whole."
GREEK CRISIS BOILS
The euro fell 1.0 percent against the dollar as European leaders met for a two-day summit where they will pile pressure on Greece to adopt deeply unpopular austerity measures in return for fresh funds to try to avert a damaging debt default that could impact the global economy.
Euro zone governments are meanwhile arm-twisting banks and insurers to maintain their exposure to Greek sovereign debt when their bonds mature, despite the heightened risk of default, as part of a planned second financial rescue for Athens.
Although gold has come under intense pressure, analysts said they believed the Greek debt crisis would remain a key driver of demand for the metal.
"We believe financial market uncertainty appears high enough for the ongoing Greek saga to translate into higher gold prices," said HSBC analyst Jim Steel in a note.
Meanwhile, gold in sterling terms hovered near a record 969.66 pounds an ounce, as the pound flagged following the Bank of England's June meeting minutes on Wednesday which suggested policymakers had not ruled out more quantitative easing.
Inflows of gold into the world's largest exchange-traded fund, the SPDR Gold Trust have steadied this week, although so far this year, the fund's holdings are down by more than 5 percent, highlighting the move by investors away from physical gold and into other assets.
Silver was last down almost 2.0 percent at $35.62 an ounce, while platinum and palladium fell by more than 2 percent.
Spot platinum was last down 2.5 percent at $1,704.74 an ounce, while palladium was down 2.6 percent at $745.97.
Swiss data showed a slowdown in both imports and exports of palladium from one of Europe's leading clearing hubs for platinum group metals.
Copyright Reuters, 2011
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