Gold slumped to a near-six-year low on Thursday after comments from Federal Reserve chair Janet Yellen virtually cemented the case for a US rate hike this month, while the strength in the dollar also pressured the metal.
Spot gold fell 0.2 per cent to $1,051.26 an ounce by 8:37 pm IST. Earlier in the session, it dipped to as low as $1,045.85, the lowest since February 2010. US gold futures slid to $1,045.40, the lowest since October 2009.
Fed Chair Yellen said on Wednesday she was "looking forward" to a US interest rate rise that will be seen as a testament to the economy's recovery from recession.
Yellen expressed confidence in the US economy, saying job growth through October suggested the labour market was healing even if not yet at full strength.
"The market took these comments as a good indication that the Fed would raise rates at the next FOMC meeting later this month," said HSBC analyst James Steel, said referring to the Fed's Federal Open Market Committee.
A rate hike in December, widely expected in the market, would be the first in nearly a decade. Gold, as a non-interest-paying asset, would not benefit from higher rates.
"Gold is likely to remain fragile and vulnerable to the downside as investor sentiment is clearly negative," Steel said.
Yellen's comments come after expectations for a Fed rate hike at its December 15-16 policy meeting were slightly shaken on the back of poor manufacturing data released earlier in the week. However, private employment data on Wednesday was stronger than expected, adding to gold's troubles.
US nonfarm payrolls data on Friday will be keenly watched for more clues.
The dollar jumped to its highest in 12-1/2 years against a basket of major currencies on Wednesday after Yellen's hawkish comments. A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.
Investors are rapidly pulling out of bullion funds, adding to the pressure on the metal.
Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 2.41 per cent to 639.02 tonnes on Wednesday, the lowest since September 2008.
The outflow is the biggest single-day per centage drop in four years.
Gold prices could see another trigger later on Thursday as the European Central Bank announces its policy decision.
"Any further accommodative measures by the ECB later tonight would likely spell further downside risk for gold prices," OCBC Bank said in a note.