Gold hovers near 5-week low as stronger dollar, bond yields weigh

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By Swati Verma

BENGALURU (Reuters) - Gold prices stuck to a narrow range on Thursday, hovering near five-week lows hit in the previous session, pressured by a stronger dollar and a rise in U.S. Treasury yields.

Spot gold was up 0.1 percent at $1,324.61 per ounce at 0656 GMT, a day after it fell to $1,318.51, its lowest since March 21. U.S. gold futures rose 0.3 percent to $1,326.2 an ounce.

"Gold prices are lower because of the stronger dollar," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

"At these low levels the market could now attract some physical buying interest ... the market has a very good (physical) support at around $1,310-$1,315 levels."

The dollar index, which measures the greenback against a basket of currencies, was at 91.102 after rising as far as 91.261 in the previous session, its highest since Jan. 12.

"Contributing to this (fall in gold prices) was a rise in the dollar and further increase in Treasury yields above 3 percent, which made holding the precious metal less attractive," ANZ Bank said in a note.

A stronger dollar makes bullion more expensive for holders of other currencies, while higher bond yields dampen demand for non-interest yielding bullion.

The benchmark U.S. Treasury 10-year yield edged above 3 percent on Wednesday as jitters about growing federal borrowing spurred more selling in the U.S. government bonds, paving the path for it to visit levels not seen since July 2011.

A rise in Asian stocks also took some safe-haven demand away from gold.

Spot gold may test support at $1,317 per ounce, with a good chance of breaking below this level and falling more to the next support at $1,310, according to Reuters technical analyst Wang Tao.

Markets are now waiting for the European Central Bank's monetary policy decision later in the day.

The ECB is set to keep policy unchanged on Thursday, playing down worries over recent softness in the euro zone economy and potentially ending its bond purchase scheme by the close of the year.

In other precious metals, silver gained 0.2 percent to $16.56 per ounce, after falling over 1 percent in the previous session.

Platinum was up 0.2 percent at $907.49 per ounce. It slid about 2.2 percent on Wednesday.

Palladium slipped 0.4 percent to $973.80 an ounce.

(Reporting by Swati Verma in Bengaluru; Editing by Biju Dwarakanath, Christian Schmollinger and Joseph Radford)