US gold futures finished with moderate losses on Thursday after probing one-week lows, with speculative sellers able to push through technical support levels amid dollar strength and longer-dated US interest rate increases, analysts said.
"It is really all interest rate driven right now, which obviously means dollar driven. The euro looks like it might roll over and have the dollar strengthen again," said Frank McGhee, head precious metals trader at Integrated Brokerage Services Llc in Chicago.
Most-active gold futures for August on the Comex division of the New York Mercantile Exchange settled $5.80 lower at $654.20 an ounce, up from the session low of $650.50, a level dating back to June 14, though down from the $659.50 top.
On Tuesday, it set a $665.80 high, last seen on June 8. Short-term, implications of higher rates could mean liquidity and inflation will be sucked out of the financial system, making some investors more cautious about holding assets like gold.
"The fundamental point is that we've had a true realignment of interest rates with the (US Treasury) 10-year note (yield) between 5.10 and 5.25 percent. That puts a very significant downward pressure on the euro, upward pressure on the dollar, which is very negative for gold," said McGhee.
On Thursday, the dollar strengthened against the euro with the focus on the rising US interest rate outlook. A higher dollar tends to make investment in dollar-denominated assets like gold more expensive for overseas buyers. Longer-term US government debt prices fell on Thursday, as jittery investors wanted to pare exposure to long-term rates, seeking the safe haven of short-term maturates.
Patrick Fearon, precious metals analyst at A.G. Edwards & Sons said a dramatic rise in longer yields at some point could prolong the housing slump, complicate things in the auto sector, weigh on investment and consumer spending, which, added together, would eventually bring down inflation.
At the same time, analysts said a clear technical pattern set up a more vulnerable outlook for gold, though it currently remained in its $650 to $665 per ounce consolidation range.
McGhee explained that gold's breakdown on Thursday, before extending this week's rally up to the $670 upside channel target, made it vulnerable to more selling. "Right now we're hanging in limbo. If we hold the $648 to $650 range we've got a little bit of technical support that can take us back to test the $665 to $668 area," he said.
If the dollar continues to rally against the euro, however, he said he sees significant selling wave taking August gold futures down to the $635 to $640 areas.
Comex estimated final gold volume at a heavy 85,044 lot, up from 63,458 lots on Wednesday. Spot gold steadied around $651.30/652.80 an ounce late on Thursday, off $654.50/656.0 an ounce on Wednesday, but well above the $647.50 session low dating back to June 14.
On Tuesday, it set a 10-day high $661.40 an ounce. London banks set the afternoon gold fix at $650.50. Comex July silver lost 16.0 cents to end at $13.09 an ounce, but slid to a low at $12.97 from the $13.2650 high. Spot silver fell to $13.08/13.12 an ounce at Thursday's end, down from $13.21/3.25 an ounce in late on Wednesday trade. London silver was fixed at $13.17 an ounce.
Nymex July platinum lost $1.80 to $1,299.0 an ounce. Spot platinum ease to $1,288/1,292 an ounce. September palladium turned down $0.55 to $379.35 an ounce. Spot palladium edged up to $374.0/377.0.