Gold falls after 1.5 pct rally, set for first weekly fall in 7
London (July 18) Gold dropped on Friday, set for its first week of decline in seven on fears of higher U.S. rates and as investors took profits after a 1.5 percent jump on the downing of a passenger plane in eastern Ukraine.
Gold, seen as a hedge against risk in times of geopolitical and financial uncertainty, posted its biggest daily gain in a month on Thursday after the loss of the Malaysian airliner, as Kiev and Moscow blamed each other for the tragedy.
The disaster could prove a turning point for international pressure to resolve the crisis in Ukraine, which has killed hundreds since protests toppled the Moscow-backed president in Kiev in February and Russia annexed Crimea a month later.
"There was a spike higher in precious metals yesterday but investors do not expect a lasting impact from the situation in Ukraine," Quantitative Commodity Research director Peter Fertig said.
"We may still see gold remaining above $1,300 today but the strong selling seen at the start of the week indicates there is some pressure from market participants to liquidate the metal and push prices lower."
Spot gold slipped 0.4 percent to $1,312.00 an ounce by 1016 GMT, undermined by a stronger dollar and concerns that the Federal Reserve could raise U.S. interest rates sooner than expected.
U.S. gold futures for August delivery were down 0.4 percent at $1,312.30 an ounce.
European shares extended Thursday's losses, while the dollar steadied against a basket of currencies after declining in the previous session.
The market will continue to focus on U.S. economic data after another decline in weekly jobless claims on Thursday supported views that the world's largest economy is on a steady recovery path.
Fed Chair Janet Yellen said on Tuesday the U.S. central bank could raise rates earlier or faster if hiring and wages take off in an unexpected way.
Higher interest rates would encourage investors to switch to assets that, unlike gold, pay interest.
"Gold is facing two significant obstacle blocks," UBS said in a note. "Firstly, backers are likely to be hesitant to add fresh length given gold's painful and costly retreat earlier this week."
Secondly, safe-haven-driven rallies this year have been short-lived, it added. "Both the Ukraine and Iraqi crises have encouraged gold buying this year, but the impact has been inconsistent and moderate."
As a gauge of investment sentiment, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 2.69 tonnes to 803.34 tonnes on Thursday.
Palladium fell 0.8 percent to $874.00 an ounce but remained near its highest since 2001 after the United States imposed its toughest sanctions yet on Russia, the biggest producer of the metal, over the violence in Ukraine.
Spot platinum was down 0.4 percent at $1,488.49 an ounce and silver fell 0.6 percent to $20.93 an ounce, having gained almost 2 percent on Thursday.