Gold pares gains as dollar, bond yields climb after strong US data

Gold prices pared gains on Thursday as the dollar and Treasury yields rose after stronger-than-expected U.S. economic data that could influence the size of interest rate cuts from the Federal Reserve, reports Reuters.

Spot gold was up 0.3 per cent at $2,454.40 per ounce, as of 1:46 p.m. EDT (1746 GMT), after rising as much as 0.9 per cent earlier in the session. U.S. gold futures settled 0.5 per cent higher at $2,492.40.

"Retail sales being so positive shows the economy is strong and that has kind of turned the markets, and the dollar is regaining some of its strength and gold's losing some of its lustre," said Chris Gaffney, president of world markets at EverBank.

U.S. retail sales increased 1.0 per cent last month after a downwardly revised 0.2 per cent drop in June, the Commerce Department's Census Bureau said.

Separately, a Labor Department report showed the number of Americans filing new applications for unemployment benefits dropped to a one month-low last week.

Following the U.S. data, the dollar rose 0.5 per cent against its rivals, making gold more expensive for other currency holders, while benchmark 10-year Treasury yields also jumped.

Meanwhile, two Fed officials on Thursday lined up behind the possibility of an interest rate cut at the U.S. central bank's policy meeting next month, reversing their previous skepticism about lowering borrowing costs too soon.

Markets see a 100 per cent chance of a U.S. cut rate in September, according to the CME FedWatch Tool. However, strong data has taken 50 basis point cut off the table. FEDWATCH

A low interest rate environment tends to boost non-yielding bullion's appeal.

"The political uncertainties will continue to be positive for gold prices, but they'll also add to the volatility," said Jeffrey Christian, managing partner of CPM Group.

Spot silver gained 2.6 per cent to $28.30 per ounce. Platinum jumped 3.8 per cent to $954.65 and palladium rose 0.5 per cent to $940.04.

"The industrial precious metals like silver and platinum benefited from stronger data this morning because of expected increase in demand with stronger economy," Gaffney said.