Gold subdued as dollar strength offsets Europe lockdown worries

Gold prices edged lower on Thursday as a stronger US dollar overshadowed support from lower bond yields and worries that lockdowns across Europe would take a toll on the pace of economic recovery.

The dollar index rose to a four-month high against its rivals, making gold more expensive for holders of other currencies.

"We are in a rough patch in terms of risk appetite in general; that could add some support to gold market, but right now the focus is on the dollar," said Saxo Bank analyst Ole Hansen.

"Gold prices need to break above $1,765/oz level to attract renewed momentum."

Spot gold was down 0.2% at $1,731.60 per ounce by 1011 GMT. US gold futures eased 0.1% to $1,730.90 per ounce.

Sentiment in wider financial markets remained weak as investors grew wary about the economic outlook following a new round of coronavirus restrictions in the euro zone and potential US tax hikes.

"With virus cases rising and lockdowns in Europe, the road to recovery might take a little longer, which is leading to lower yields," Hansen said.

Offering some respite to gold, US Treasury yields dipped, with the market appearing to stabilise after benchmark yields reached one-year highs last week.

Lower yields reduces the opportunity cost of holding non-interest bearing gold.

"Bullion could see further upside traction if US bond yields stay sluggish, especially in this risk-averse environment with US-Sino tension starting to bubble again," said Stephen Innes, chief global market strategist at financial services firm Axi, in a note.

Among other precious metals, palladium edged up 0.1% to $2,637.47 per ounce and platinum was steady at $1,167.45.

Silver fell 0.8% to $24.87 per ounce, having fallen to a more than two-week low earlier in the session.