Gold sank to a five-week low on Thursday, with analysts expecting further losses as investors become increasingly certain that US interest rates will rise this month. Spot gold was down 0.1 percent at $1,206.76 an ounce by 1330 GMT, having dropped earlier to its weakest since February 1 at $1,202.70. US gold futures eased by 0.2 percent to $1,206.80. Strong US economic data and comments by Federal Reserve officials have reinforced expectations of a March increase to US rates.
Higher interest rates are likely to pressure gold prices because they raise the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. "You could see the price continuing to drop as more news comes out confirming what the market already knows," said Bernard Dahdah, metals analyst at Natixis. "I wouldn't be surprised to see gold drop below $1,200 in the next few days."
February's US private sector job growth numbers, released on Wednesday, showed the biggest jump for more than a year. Investors are now awaiting non-farm payrolls data on Friday for further clues on the strength of the US economy after Federal Reserve Chair Janet Yellen said last week that the central bank was poised to lift rates, provided that jobs and inflation data held up. Her comments were seen as cementing plans for an increase at the Fed's March 14-15 meeting.
"If the (non-farm payroll) data does come in better than market expectations, it will drag gold prices further," said OCBC analyst Barnabas Gan. "But with fund futures fully pricing in the rate hike story, I'd presume gold will just be supported at the $1,200 handle into next week."
Interest rate futures implied that traders had put the chance of a rate hike next week at 86 percent on Wednesday, compared with 82 percent at Tuesday's close, according to CME Group's FedWatch program. In other precious metals, silver fell 0.1 percent to $17.22 an ounce, having touched $17.10, the lowest since January 31.
Platinum rose 0.1 percent to $945.24 after hitting a low of $939, the weakest since January 5, while palladium slid 2.7 percent to $748.20, its lowest since February 6. "The shrinking price differential compared with platinum could slow palladium demand from the automotive industry," Commerzbank said in a note.