Gold fell close to a three-week low on Wednesday as the latest piece of economic data indicating the U.S. economy is strengthening spurred markets to bring forward the timing of a possible hike in U.S. interest rates.
Data on Wednesday showed initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 280,000, the fourth straight week of declines.
The data followed Tuesday’s report that the U.S. economy grew at a 5.0 percent clip in the third quarter, its quickest pace in 11 years.
Spot gold, initially supported by a softer dollar, gave up gains after the U.S. data to trade down 0.2 percent to $1,173.11 an ounce, within reach of a three-week low of $1,170.17 hit on Monday. Any dip below that level could trigger further losses, analysts said.
U.S. gold futures for delivery in February fell 0.4 percent to $1,173.40 an ounce.
European equities ended slightly higher in a shortened session ahead of the Christmas break, while U.S. shares edged higher. Stronger equities reduce demand for bullion, often seen as an alternative to riskier assets.
The dollar climbed to its highest since April 2006 versus a basket of leading currencies on Monday, but was down 0.2 percent on Tuesday.
“The dollar strength will continue to be a feature of the market in the first half of 2015 on the prospect of imminent interest rates hikes …and that will weigh on gold in the medium term,” ActivTrades senior analyst Carlo Alberto de Casa said.
A steady stream of strong U.S. data could prompt the Federal Reserve to raise interest rates soon, a factor that would hurt non-interest-bearing gold.
Momentum indicators are bearish, and a break below $1,172 would increase the likelihood of a full retracement to November lows near $1,130, technical analysts at ScotiaMocatta said.
Gold was headed for a second consecutive year of declines, though the 2 percent loss this year pales in comparison to the 28 percent plunge in 2013, which followed 12 years of gains.
Holdings of the world’s top gold-backed exchange traded fund, SPDR Gold Trust, are near six-year lows, reflecting weak investment sentiment towards bullion. Physical demand in top consuming region Asia has dipped from record levels seen last year.