Gold close to 3-week lows, outlook dim on strong US growth
London (Dec 24) Gold rose on Wednesday as the dollar eased, but was still trading close to a three-week low as strong U.S. economic growth boosted equities, spurring markets to bring forward the timing of a possible hike in U.S. interest rates.
Data on Tuesday showed the U.S. economy grew at a 5.0 percent clip in the third quarter, its quickest pace in 11 years and the strongest sign yet that growth has decisively shifted into higher gear.
Spot gold rose 0.3 percent to $1,178.80 an ounce by 1020 GMT, but remained within reach of a three-week low of $1,170.17 hit on Monday. Any dip below that level could trigger further losses, analysts said.
Both the Dow and the S&P 500 hit record closing highs on Tuesday after the GDP report. Stronger equities reduce demand for bullion, often seen as an alternative investment to riskier assets.
The dollar climbed to its highest since April 2006 versus a basket of leading currencies on Monday, but was down 0.2 percent as investors awaited the last set of economic data before the Christmas break - weekly jobless claims were scheduled for release at 1330 GMT.
"The dollar strength will continue to be a feature of the market in the first half of 2015 on prospect of imminent interest rates hikes ...and that will weigh on gold in the medium term," ActivTrades senior analyst Carlo Alberto de Casa said.
Robust economic data could prompt the Federal Reserve to raise interest rates soon, a factor that would hurt non-interest-bearing gold.
"Markets are likely to trade quietly ahead of the Christmas holidays," said MKS Group dealer Jason Cerisola. "$1,170 continues to be the key level on the downside, with market chatter of large stop loss orders sitting below."
Momentum indicators are bearish, and a break below $1,172 would increase the likelihood of a full retracement to November lows near $1,130, technical analysts at ScotiaMocatta said.
Gold was headed for a second consecutive year of declines, though the 2 percent loss this year pales in comparison to the 28 percent plunge in 2013, which followed 12 years of gains.
Holdings of the world's top gold-backed exchange traded fund, SPDR Gold Trust, are near six-year lows, reflecting weak investment sentiment towards bullion. Physical demand in top consuming region Asia has dipped from record levels seen last year.
Silver rose 0.7 percent to $15.78 an ounce and platinum was up 0.2 percent at $1,188.49 an ounce. Both were headed for annual declines. Palladium, down 0.4 percent at $805.65, was eyeing a third straight yearly increase due to supply concerns from producer Russia.