Gold extends losses towards 4-1/2-year low as dollar climbs

By A. Ananthalakshmi

SINGAPORE (Reuters) - U.S. gold futures extended losses to a second session on Tuesday, falling towards their lowest since 2010, as the strength in the dollar hurt demand for the precious metal as a hedge.

U.S. gold futures dropped 1 percent to $1,145.50 an ounce, close to a 4-1/2-year low of $1,130.40 reached last week. They had recovered modestly to trade down 0.6 percent at $1,153 by 0726 GMT.

Spot gold also fell to a session low of $1,145.92 before recovering, following a 2.2 percent drop in the previous session.

The dollar jumped towards a seven-year high against the yen. It was also firm against a basket of major currencies after recouping some of its post-payrolls losses. [USD/]

Gold's inability to retain a 3 percent jump from Friday shows investors are selling into rallies, expecting more downside. A stronger greenback discourages buying of dollar-denominated gold by holders of other currencies.

"U.S. economic growth in particular looks buoyant and is likely to drive the dollar even higher, placing downward pressure on gold," said Danny Laidler, head of the ETF Securities' Australia & New Zealand operations.

The firm saw $85.8 million of outflows last week from gold-backed exchange-traded products, reversing the previous four-weeks of inflows as more investors became bearish on the metal's prospects, he said.

The bleak investor interest in bullion indicated that investors expect prices to drop further amid a recovery in the U.S. economy, the likelihood of the Federal Reserve rising rates sooner than later and a robust dollar.

Holdings of ETF Securities' rival SPDR Gold Trust, the world's top gold exchange-traded fund, fell 0.25 percent to 725.36 tonnes on Monday - a fresh six-year low. [GOL/ETF]

Gold prices could tumble towards $800 to $900 an ounce, not seen since the 2008/2009 financial crisis, as the metal is no longer seen as a decent portfolio diversifier, metals merchant and hedge fund Red Kite said on Monday.

Analysts and traders surveyed by Reuters last week predicted that prices could fall to $1,000 by the end of the year, revisiting that level for the first time since 2009.

In the physical markets, buying in top consumer China remained steady but at subdued levels on Tuesday. Local prices were about $1-$2 an ounce higher than the global benchmark, unchanged from the previous session.

PRICES AT 0726 GMT

Metal Last Change Pct chg

Spot gold 1153.8 3.67 0.32

Spot silver 15.57 0 0

Spot platinum 1201 9 0.76

Spot palladium 762.75 4.15 0.55

Comex gold 1153 -6.8 -0.59

Comex silver 15.59 -0.081 -0.52

Euro 1.2423

DXY 87.855

COMEX gold and silver contracts show the

most active months

(Editing by Michael Perry and Muralikumar Anantharaman)