Picture: REUTERS
Picture: REUTERS

London — Gold slid back towards its low for the year on Thursday as another rise in US bond yields and concerns over political risk in Italy held the dollar index near its 2018 peak.

Gold has fallen more than 2% this week on gains in the US currency and a rise in US 10-year treasury yields to seven-year highs. Higher yields increase the opportunity cost of holding non-yielding assets such as bullion.

Spot gold was down 0.1% at $1,288.96 an ounce by 9.30am GMT, close to the previous day’s four-and-a-half-month low of $1,286.20. US gold futures for June delivery were down $3.40 at $1,288.10.

The dollar has climbed nearly 4% so far this quarter on expectations that the US Federal Reserve will lift US interest rates further this year to curb inflation, at a time when other central banks are still keeping monetary policy loose.

"I expect further weakness in gold prices because I think the dollar can rise a bit further," said ABN Amro analyst Georgette Boele. "Gold prices are mainly driven by the dollar and then US yields … our year-end 10-year US treasury forecast stands at 3.2%, with three more Fed rate hikes."

The euro remains under pressure, hovering near a five-month low on concerns that political developments in Italy could cause wider disruption in the common currency bloc. Political uncertainty arising out of North Korea after Pyongyang threatened to pull out of a meeting with the US was likely to be limiting downside for gold, analysts said. However, that was not enough to offset the strength in the dollar.

From a technical perspective, gold prices were looking vulnerable to further losses after breaking below key chart levels this week, said analysts who study past price moves to determine the future direction of trade.

"Gold has eroded key support, namely the 200-day moving average, the $1,302.74 March low and the 50% retracement [of the December-to-January rally]," Commerzbank said in a note on technicals. "We have been forced to neutralise our outlook as the market is now on the defensive."

Among other precious metals, silver was up 0.3% at $16.40 an ounce, having touched its lowest in two weeks at $16.17 in the previous session. Platinum was up 0.3% at $886.74 after hitting its lowest in five months at $883, while Palladium fell by 0.1% to $982.