Picture: 123RF - KTSDESIGN
Picture: 123RF - KTSDESIGN

London — Gold extended its downtrend on Wednesday, sinking to its lowest in a year on a buoyant dollar and falling oil prices, but some analysts said bullion was close to bottoming out.

Gold has shed more than 10% since touching a peak of $1,365.23 an ounce in mid-April, weighed down by a stronger dollar, rising US interest rates and trade tension.

Spot gold was down 0.3% at $1,223.11 an ounce by 10am GMT, after touching its weakest since July 14 last year at $1,220.81/oz.

US gold futures for August delivery shed 0.3% at $1,223.30/oz.

"In this environment where we also see oil prices falling, and so less concern from investors about rising inflation, that’s another negative for the gold price," said Jens Pedersen, senior analyst at Danske Bank in Copenhagen.

Gold is regarded as a hedge against inflation.

Oil benchmark Brent crude hit a three-month low on Wednesday after a rise in US crude inventories highlighted increasing global supply and concerns over weak demand.

The dollar rose across the board on Wednesday, climbing to a six-month high against the yen, after US Federal Reserve chairman Jerome Powell gave an upbeat outlook for the US economy.

Higher interest rates tend to boost the dollar and push up bond yields, making dollar-denominated gold more expensive for holders of other currencies and denting its appeal.

"With the dollar on a solid footing, gold prices should stay pressured lower for the foreseeable future … gold has wholly lost its appeal in this enduringly bullish equity and dollar environment," said Stephen Innes, Asia-Pacific trading head at Oanda in Singapore.

However, Pedersen said he expected dollar strength to wane and other factors to help gold stabilise.

"There are still some concerns about the geopolitical environment, the situation in Italy for example, so if these stories start to flare up again, it could lead investors back into gold," he said.

Among other precious metals, silver was off 0.9% at $15.41/oz, after touching $15.38, its lowest since July 10 last year.

Platinum lost 0.7% to $806.50/oz and hit a two-week low of $798.14/oz earlier in the session.

Palladium dipped 0.3% to $908.53/oz after

Reuters