Gold fell on Thursday as signs this week that central banks might scale back their ultra-loose monetary policy pushed bond yields higher, though a decline in the dollar to its lows for the year lent support.
Gold is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion. However, gains in the dollar, in which it is priced, are offsetting the impact of higher yields to keep gold rangebound.
"Gold is caught between the weaker dollar and higher real yields," UBS analyst Joni Teves said. "That's feeding through to price action." "There has been a shift towards more hawkishness (among central banks)," she said. "We have been flagging the potential for European rates to head higher and exert pressure on global yields."
A raft of hawkish comments from central banks this week signaled the era of easy money, which helped gold hit record highs at $1,920.30 an ounce in 2011, might be coming to an end in more than just the United States. German 10-year government bond yields hit five-week highs and the euro a 14-month peak as investors geared up for the prospect of the European Central Bank scaling back its massive monetary stimulus program.
Comments from ECB chief Mario Draghi on Tuesday were seen as opening the door to monetary policy tweaks, while Bank of England Governor Mark Carney has also raised the prospect of a UK interest rate hike in the coming months this week.
Comments from two top Bank of Canada policymakers have also raised hopes of an interest rate hike next month. "To a substantial degree, the latest U.S. dollar weakness is thus due to the strength of other currencies, meaning that gold has been profiting to a below-average extent," Commerzbank said in a note.
Gold is poised to end the second quarter less than $1 an ounce from where it began, its most static quarterly performance in more than two years. Autocatalyst metal palladium has been the best performer of the major precious metals this quarter, rising 8 percent. It hit a more than 16-year high this month after a surge in speculative demand pushed the metal through long-term chart resistance.
Palladium was down 0.77 percent to $848.40 an ounce. Among other precious metals, silver was 0.89 percent lower at $16.62 an ounce after touching a two-week high of $16.90 early in the day, while platinum was down 0.47 percent at $915.20 per ounce.