Gold slipped nearly 1 percent on Thursday, erasing most of this week's gains, as the dollar rose to a three-week high against the euro after a raft of US data and amid persistent concerns over euro zone debt levels. US gold futures for February delivery fell $9.00 to $1,378.30.
US data showed first-time claims for jobless benefits barely moved last week, suggesting the labour market is healing too slowly to cut unemployment. Other reports showed US consumer spending rose for a fifth month in November and incomes climbed by more than expected, while a rise in new orders for US manufactured goods excluding transport also beat expectations.
The dollar held onto its earlier gains versus the euro after the data, pushing gold lower. Dollar strength typically curbs gold's appeal as an alternative asset and makes dollar-priced assets more expensive for holders of other currencies. That correlation weakened this year as concerns over euro zone sovereign debt levels lifted both assets, but the dollar's performance next year will remain key to developments in the gold price, analysts said.
Thursday's correction notwithstanding, gold is still heading for its first weekly rise in three. Its haven appeal rose after ratings agency Fitch said it may cut Greece's foreign currency rating and Moody's threatened to downgrade debt-ridden Portugal. Analysts say gold and the other precious metals could be in for some hefty gains next year.
While the prospect of tighter monetary policy, initially in China, could be a threat to the metals, persistent concern over sovereign debt is likely to benefit gold, while more industrial precious metals will be supported by economic recovery. The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, recorded its biggest one-day drop since early October on Wednesday, with its holdings declining just over 9 tonnes to 1,288.616 tonnes.
The fund's holdings are up just over 2 tonnes since the end of November, against a rise of nearly 16 tonnes in the same period of last year. Among other precious metals, platinum was at $1,712.99 an ounce against $1,721.50, while palladium was at $748.97 against $748.25. Silver was at $29.21 an ounce against $29.20.