Gold fell nearly 1 percent, down for a second day on Tuesday after better-than-expected U.S. economic data and easing tensions over North Korea encouraged investors to buy riskier assets, boosting stocks, the U.S. dollar and bond yields.
Gold, seen as a safe haven in times of uncertainty, rose to a two-month high of $1,291.86 on Friday after a week of escalating military threats between Washington and Pyongyang.
But fears of conflict eased when North Korean leader Kim Jong Un on Tuesday signalled he would delay a decision on firing missiles towards Guam, a U.S. territory in the Pacific.
“Gold longs liquidated as the chances of a Korean catastrophe appeared to fall significantly overnight and this morning surprisingly strong U.S. retail sales data buoyed U.S. yields and the dollar, which pressured gold further to lows,” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
“Silver retreated sharply in sympathy as well but both metals have held important support and may trade sideways ahead the Fed minutes tomorrow.”
Spot gold was down 0.8 percent at $1,271.58 an ounce by 3:07 p.m. EDT (1907 GMT), taking losses since Friday’s high to nearly 2 percent.
U.S. gold futures for December delivery fell 0.8 percent to settle at $1,279.70. Silver was down 2.1 percent at $16.65 an ounce, falling below its 100- and 200-day moving averages.
Gold’s fall accelerated after strong U.S. retail sales in July and strength in an index of business conditions in New York state suggested strong economic growth.
The dollar rose to near a three-week high against a basket of currencies on Tuesday, while prices for U.S. Treasuries fell. Stocks on Wall Street were mixed.
A strong dollar is negative for gold prices because it makes dollar-priced gold costlier for holders of other currencies, while higher bond yields raise the opportunity cost of holding non-yielding bullion.
Also weighing on gold was the prospect of another increase in U.S. interest rates after an influential Federal Reserve official said on Monday he expected one more rise this year.
Gold is highly sensitive to rising interest rates because they push bond yields higher and tend to strengthen the dollar.
Investors await minutes from the Fed’s July meeting to be released on Wednesday for clues on when a rate hike is next likely.
Speculative investors who had in recent weeks built up large bets on higher prices were being forced to reduce their positions, pushing prices lower, Saxo Bank analyst Ole Hansen said.
The retreat from Friday’s high is the third time this year that gold has failed to reach $1,300, a key technical level.
Technical Fibonacci supports for gold were at $1,274.70 and $1,261.30, ScotiaMocatta analysts said in a note.
In other precious metals, Platinum was down 0.7 percent at $958.5, while palladium was 1.1 percent lower at $885.10 an ounce.