Gold hovers near 5-1/2-year low as Fed spurs Sept rate hike view

Prices could fall to as low as $1,050 per ounce, says Goldman Sachs

Gold hovered not far from a 5-1/2-year low early on Thursday after the Federal Reserve said the US economy and job market continue to strengthen, supporting a possible interest rate rise when the Fed meets again in September.

Following a two-day policy meeting on Wednesday, policymakers said they felt the economy had overcome a first-quarter slowdown and was "expanding moderately" despite a downturn in the energy sector and headwinds from overseas.

Spot gold

US gold for August delivery gained 0.3% to $1,096 an ounce.

A looming increase in US interest rates, the first since 2006, had weighed on non-interest bearing gold, with some analysts predicting further falls before and after the actual rate hike.

US economic growth is set to pick up after a lacklustre first half, allowing the Federal Reserve to raise interest rates in September, according to a Reuters poll published last week.

The first estimate of second-quarter US gross domestic product will be released later on Thursday. The economy is seen returning to growth, expanding by 2.7%, after a contraction in a weather-battered first quarter.

But contracts to buy previously owned US houses unexpectedly fell in June after five straight months of increase, suggesting some cooling in home resales activity after recent hefty gains.

Holdings of the largest gold-backed exchange-traded-fund, New York's SPDR Gold Trust , were unchanged at 21.87 million ounces for a second day on Tuesday. That level is the lowest since September 2008 and followed a seven-day slide in holdings. 

Kinross Gold Corp is again considering cutting jobs at its Tasiast gold mine in Mauritania as the Canadian miner cuts costs at its higher-cost mines amid sliding metals prices.

Gold prices are at risk of falling to as low as $1,050 per ounce, Goldman Sachs global head of commodities research Jeffrey Currie said in an interview with CNBC on Wednesday, reinforcing the bearish outlook for bullion after last week's rout.