Gold edged lower on Thursday as signs of a strengthening U.S. economy encouraged investors to take riskier bets, but speculation that central banks will stick to easy money policies continued to put a floor under prices.
Gold prices have held in a narrow range for four sessions as traders await the outcome of European Central Bank and Bank of England policy meetings later in the day, and Friday’s U.S. non-farm payrolls report.
European shares rose, pushing major indexes to near multi-year highs, and the euro held near three-month lows versus the dollar on expectations the ECB could point to future policy easing after its rate-setting meeting later.
“Investors are not really looking for safe havens at the moment,” said Eugen Weinberg, head of Commodities research at Commerzbank.
“Gold as inflation protection should get more demand from investors in the second half of the year. Right now, the market participants are looking for more yield and they’re finding it in other asset classes like equities,” he said.
(Read More: Key Level for Gold: Ilczyszyn)
Ultra-loose monetary policy, known as quantitative easing, has supported gold in recent years by keeping up pressure on long-term interest rates and stoking fears over inflation, while concerns over global economic weakness boosted safe-haven flows.
Speculation that the ECB and the Bank of England could signal that looser policy will continue is underpinning gold, though gains in other markets are offsetting that.
Official U.S. non-farm payroll figures due on Friday will be closely watched for further signs of recovery in the U.S. labor market, which could influence the Federal Reserve’s monetary policy.
Despite the Fed’s efforts to use easy monetary policy to boost jobs, the country’s economy is stuck in “neutral” more than three years after the end of the recession, a top Fed official said on Wednesday.
More Banks Cut Gold Forecasts
Australian bank Macquarie said on Thursday that gold could average $1,530 an ounce this year, down from $1,668 an ounce in 2012, if investment demand remains weak. That would represent the first annual fall in average gold prices since 2001.
“Without a compelling new driver, weaker investment demand for gold is likely to continue on reduced tail risks, low inflation, and a lower prospect of more QE,” the bank said in a note.
“So important has investment become to the gold market that even a modest fall is likely to have a significant impact on the price.”
Nomura cut its 2013 gold price forecast to $1,602 an ounce from $1,981 on Thursday, saying the investment environment for gold is deteriorating as economic recovery, rising interest rates and still benign Western inflation leave some investors rethinking their positions.
Holdings of SPDR Gold Trust,, the world’s largest gold-backed exchange-traded fund, stood unchanged at 1,244.855 tonnes on Wednesday, after 11 straight sessions of outflows.
On the physical side of the market, buyers in China slowed their robust purchases of gold as the material bought in previous weeks started to arrive onshore and eased a supply shortage.
China’s domestic gold prices had been trading at premiums of over $20 above international prices in the past few days, but that spread shrank to just over $10 on Thursday. It could further narrow to single-digit figures in the absence of another sharp fall in international market, traders said.
Buying from India, the world’s number one gold consumer, also slowed as the approach of the end of the fiscal year dented interest in purchasing the metal.
Among other precious metals, silver was last down 0.2 percent at $29 an ounce, while spot platinum was last up 0.6 percent at $1,593 an ounce and spot palladium was last up 0.2 percent at $745 an ounce.