Gold pares gains as U.S. data takes pressure off dollar

By Jan Harvey

LONDON (Reuters) - Gold pared gains on Thursday, slipping back below $1,100 an ounce as a steeper-than-forecast drop in U.S. jobless claims helped the dollar recover from earlier lows, though prices remained under pressure after this week's plunge.

Gold posted its deepest one-day loss in nearly two years on Monday, pushing prices through key chart levels and setting it up for further weakness. Low prices tempted some buyers back to the market on Wednesday, but gains remained muted.

Spot gold was up 0.3 percent at $1,096.40 an ounce at 1428 GMT, off a high of $1,105.60. U.S. gold futures for August delivery were up $3.80 an ounce at $1,095.30.

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

"The markets are all focusing on a September rate hike, so assuming that is when it occurs, you have to think that gold is going to remain under downward pressure up until that point," Citi analyst David Wilson said.

Gold's decline on Monday was exacerbated by big trading volumes on the Shanghai Gold Exchange after investors dumped more than $500 million of bullion in seconds during early Asian trading hours.

Technical analysts, who study past price patterns to estimate the future direction of trading, say once its current bounce is over, the next target for gold below its Wednesday low near $1,087 an ounce is $1,044, its 2010 low.

"The bounce in gold is nothing but a technical trade, as most major momentum indicators are showing that the recent selloff is overdone," AvaTrade's chief market analyst Naeem Aslam said.

"Gold is falling out of favour as the Fed is preparing to increase borrowing costs. This will remain the major hurdle for any upside move for the precious metal and traders will likely be selling into these rallies."

Investors continue to cut their exposure to gold. Holdings in the biggest gold-backed exchange-traded fund, SPDR Gold Shares, shrank for a fifth day on Wednesday to their lowest since 2008.

Some demand emerged for physical metal, however. A retreat in the dollar, which fell 0.5 percent against a currency basket, encouraged some buying in China overnight, dealers said.

The gold rout this week has spurred buying of bullion coins in the United States, where government data showed sales for this month have hit their highest in more than two years.

Silver was down 0.1 percent at $14.75 an ounce. Spot platinum was up 0.3 percent at $981.24 an ounce, while spot palladium was up 0.3 percent at $627 an ounce.

(Additional reporting by Manolo Serapio Jr.; Editing by Dale Hudson and David Evans)