Gold hits 5-1/2-year low, heads for worst week since October

Gold slid more than 1% on Friday to its lowest since early 2010 as fresh strength in the dollar prompted another wave of selling, putting the metal on course for its biggest weekly loss in nine months.

Prices have been under pressure since tumbling more than 3% in Asian trading hours on Monday, their biggest one-day drop in nearly two years, in a selloff accompanied by heavy trading volumes in New York and Shanghai.

Spot gold hit a low of $1,077.00 an ounce on Friday and was down 0.7% at $1,083.25 at 0930 GMT. US gold futures for August delivery were down $11.70 an ounce at $1,082.40.

Gold has been hurt this year by expectations that the Federal Reserve is on track to raise interest rates for the first time in nearly a decade, boosting the opportunity cost of holding non-yielding bullion while lifting the dollar.

"It feels as though the driver in this market, aside from the impetus we got from China, is that if you get any kind of dollar strength, gold goes down," Natixis analyst Nic Brown said. "But the flip side of that simply doesn't support prices."

"It's been very painful this week," he said. "Sentiment remains negative, and the trend does very much appear to be further down."

The dollar rose on Friday after data the previous day showed US weekly jobless claims dropping to their lowest since 1973, while the euro fell on downbeat German and euro zone data. 

As gold prices slump, holdings of the world's biggest gold-backed exchange-traded fund (ETF), the SPDR Gold Trust, fell for a sixth day on Thursday to 684.6 tonnes, the lowest since September 2008. 

The fund is on track for its biggest weekly outflow since early May.

"Rising nominal rates and disinflation have created the most bearish cocktail for gold in the past 43 years," Bank of America said in a note.

"As such, we reiterate our view that gold prices are unlikely to rally into a Fed tightening cycle and now believe gold could dip below $1,000 an ounce by 2016."

Physical demand in Asia remained lacklustre amid modest premiums in top gold consumers India and China.

Elsewhere, silver was down 0.4% at $14.59 an ounce. Palladium was up 1.1% at $621.75 an ounce, while platinum was down 0.2% at $974.25, both holding near multi-year lows.

Platinum producer Lonmin said on Friday it planned to close or mothball several mine shafts, putting 6,000 South African jobs at risk, because of depressed metal prices.