Gold bounced back from a one-week low hit in earlier trade on Thursday to end at $1,564 per ounce, as a weak dollar prompted buyers to pick up bargains, although analysts expect the rebound will be short-lived.
The possible sale by Cyprus of 400 million euros' worth of gold reserves, heavy outflows from exchange-traded funds and uncertainty over the U.S. Federal Reserve's stimulus program are expected to continue weighing on sentiment.
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Gold last rose 0.3 percent to $1,563, having fallen to its lowest since April 5 at $1,553.10 an ounce in earlier trade. On Wednesday prices posted their biggest one-day fall since Feb. 20, accelerating losses after news of the Cyprus gold sale plan. Gold futures settled $6.10 higher to end at $1,564.90 per ounce.
"It's a combination of factors including some bargain hunting, a weaker dollar and low volumes as people are taking a step back after jobless claims came in slightly better than expected but the four-week average continues to hold above the prior reading," VTB Capital analyst Andrey Kryuchenkov said. "I think we'll stay above $1,550/$1,555 for the time being, unless prices close above strong resistance at $1,584.60, level that we unsuccessfully tried to breach three times."
Weekly jobless claims dropped 42,000 to a seasonally adjusted 346,000, more than the expected 365,000 new filings and compared with 385,000 in the prior week.
Other data showed U.S. import prices slipped 0.5 percent last month, in line with expectations, while export prices fell 0.4 percent, signaling inflation pressure remained tepid and would allow the Federal Reserve to continue with its current monetary policy.
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Minutes of its March 19-20 meeting released on Wednesday showed the U.S. central bank was moving closer to ending its monthly $85 billion purchases of mortgage and Treasury bonds to keep rates low and spur faster job growth, but fears of a marked deterioration in labour market conditions were rekindled after a surprise stumble in job growth in March.
"The focus on U.S. economic data is bound to become more acute in the coming weeks and months as the market searches for clues on whether the current momentum of opinion at the Fed continues or stalls," UBS said in a note.
Gold last year jumped to an 11-month high in October after the Fed announced its third round of aggressive economic stimulus, raising fears the central bank's money-printing to buy assets would stoke inflation.
Cyprus Gold Reserves
Gold prices started the day in negative territory as a European Commission assessment, dated April 9, of what Cyprus needs to do as part of its European Union/International Monetary Fund bailout showed the island is expected to sell in excess gold reserves to raise around 400 million euros ($523 million).
At current prices, 400 million euros' worth of gold amounts to around 10 tons of metal. Cyprus' total bullion reserves stood at 13.9 tons at end-February, according to data from the World Gold Council.
"The Cyprus news has damaged gold in the past hours... and rallies are there to be sold at the moment," Societe Generale analyst Robin Bhar said.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD, fell 1.4 percent to 38.051 million ounces on Wednesday.
In wider markets, the dollar fell from a four-year high against the yen and to a six-week low versus the euro, while the world equity markets rallied for a fourth day.
Silver was up 0.4 percent at nearly $28 an ounce.
Spot palladium, which fell to its lowest in three months in the previous session, was up 1.6 percent to $730 per ounce, while spot platinum was up 0.6 percent at $1,532 an ounce.