Gold hits six-week low after Fed fuels dollar rally

Gold prices tumbled to six-week lows on Thursday, under pressure from a strengthening dollar on expectations of further U.S. rate rises this year and receding political uncertainty in Europe.

Spot gold was down 0.3 percent to $1,234.88 an ounce at 1016 GMT after touching $1,232.60, its lowest since March 21. U.S. gold futures slid 1.1 percent to $1,235.20.

The dollar strengthened after the U.S. Federal Reserve played down any threats to this year`s planned rises in interest rates, supporting forecasts of another move in June. 

A rising U.S. currency makes dollar-denominated commodities more expensive for holders of other currencies, potentially subduing demand for gold.

Expectations that centrist Emmanuel Macron would win the French presidential election on Sunday were reinforced after a TV debate with the far-right`s Marine Le Pen.

"Since the first round (April 23) of the French election we have seen gold come under pressure," said ING commodities strategist Warren Patterson. 

Investors breathed a sigh of relief after Macron won the first round of the election on April 23, seeing his victory as the best of all possible outcomes.

Gold fell 1.5 percent on Wednesday - its worst single-day drop since Nov. 23 - breaching both its 50-day and 200-day moving averages. Next support comes in around $1,221, the 100-day moving average.

"In the very near term we continue to expect that gold will trade moderately lower -- our 3-month target is $1,200/oz, as a number of bearish catalysts have yet to fully play out," Goldman Sachs analysts said in a note.

Goldman said near-term downside risks for gold included more U.S. interest rate rises than the market is expecting and the Fed starting to shrink its balance sheet on the back of possible U.S. tax cuts and solid U.S. and global economic growth.

Higher U.S. interest rates are a negative for gold, which earns nothing and costs money to insure and store.

The focus is now shifting to Friday`s U.S. non-farm payrolls report for April, which could reinforce perceptions of higher U.S. interest rates in June.

Silver rose 0.7 percent to $16.50 from an earlier $16.37, a four-month low hit on Wednesday. It has fallen more than 10 percent since touching a 5-month high of $18.65 in mid-April.

Platinum was up 0.8 percent at $899.24 from an earlier $890.50, its lowest since December.

Palladium gained 0.3 percent to $802.0. It touched $831.50 on Wednesday, its highest since March 2015 on expectations of robust demand from car makers.