Gold extends losses after biggest tumble since 2016

By Peter Hobson

LONDON (Reuters) - Gold prices continued to lose ground on Wednesday, falling to their lowest since December as the dollar rallied to 2018 highs and U.S. bond yields sat near multi-year peaks.

The metal had suffered its biggest single-day loss since November 2016 when it fell 1.7 percent on Tuesday after strong U.S. retail sales data sent the dollar and yields soaring.

Gold's declines were accelerated by technical selling as it crashed below its 200-day moving average and the psychologically significant level of $1,300 an ounce.

By 1227 GMT spot gold was down 0.2 percent at $1,287.61 an ounce, having gone as low as $1,286.20, its weakest since Dec. 27.

U.S. gold futures for June delivery were 0.3 percent down at $1,287.

"The most important driver (for gold) is the dollar and yields," said ABN AMRO analyst Georgette Boele.

A stronger dollar hurts gold by making it more expensive for holders of other currencies, while higher bond yields make non-yielding bullion less attractive to investors.

The strong U.S. retail data also suggested that the Federal Reserve will be confident about raising U.S. interest rates. That is bad for gold because higher rates push up bond yields and tend to boost the dollar.

Gold is likely to fall to $1,275 by the end of June and $1,250 by the end of the year as U.S. yields and the dollar strengthen, said Boele. That is below the $1,310-$1,360 range gold has inhabited since January.

"It held up for so long on such a high level. Now you are below $1,300 and the 200-day moving average; people who hold long positions are a little bit nervous," she said.

Technical and momentum indicators suggested that gold could fall to about $1,278, ScotiaMocatta analysts said. Fibonacci support for the metal was at $1,287, they added.

Gold is traditionally used as a safe place to park assets during times of uncertainty, but investors largely disregarded news that North Korea had called off high-level talks with South Korea on Wednesday, less than a month before a planned summit between Kim Jong Un and U.S. President Donald Trump.

"There are lot of geopolitical risks, but people are just used to it. Therefore it has not become a big driver for gold," said Argonaut Securities analyst Helen Lau.

In other precious metals, silver was down 0.2 percent at $16.20 an ounce after falling 1.6 percent on Tuesday.

Platinum eased by 0.3 percent to $890.60 and palladium lost 0.3 percent to $979.20.

(Additional reporting by Apeksha Nair and Eileen Soreng in Bengaluru; Editing by Jane Merriman and David Goodman)