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London - Gold prices slipped in Europe on Thursday for a fourth successive session as the dollar firmed versus the euro and risk appetite improved after a raft of better-than-expected US data.
Spot gold was bid at $1 376.60 an ounce at 09:54 GMT, against $1 377.65 late in New York on Wednesday. US gold futures for February delivery fell $3.10 to $1 376.60.
A string of robust US data have driven the dollar higher on expectations the United States may recover faster than other major economies. The numbers have raised expectations that a key payrolls report on Friday will be positive.
The well received data has pressured gold via the dollar and also because it both undermines the metal's appeal as a haven from risk and raises the prospect of tighter monetary policy.
"The market is a bit worried that if this continues, the justification for monetary accommodation goes away and the potential for interest rates rising becomes greater," said Deutsche Bank analyst Daniel Brebner.
"If you have higher interest rates, that removes one of the supports for gold," he added.
Given that gold is a non-interest bearing asset, the opportunity cost of holding it falls when rates are low.
"That is creating some pressure in that market, but I think it is very unlikely to be sustained," said Brebner. "Ultimately the risk of higher interest rates this year is very, very low. There are still lots of risks to growth."
European shares benefited from the US employment figures, rising 0.5%, while German government bonds, which are often seen as a safe-haven asset, fell.
The Frankfurt equity volatility index, the VDAX, eased by 2%, also indicating that risk appetite is improving.
Meanwhile other commodities held steady. Oil prices held above $90 an ounce, recovering from a mid-week slump, while copper and other base metals firmed a touch.
Healthy correction
From a technical perspective, gold's correction from the record high it hit in December is seen as potentially healthy.
"We are happy that gold is unwinding from overbought momentum conditions as it allows for further longer-term upside progression, in line with our underlying bullish view," said Barclays Capital in a note.
"We would look to build long positions in the $1 360 area ... in anticipation of gains through the $1 432 all-time high to our initial upside targets at $1 460/$1 480 ... Below the $1 350/$1 340 area would force us to reconsider our near-term positioning."
Investment demand for gold-backed exchange-traded funds remained lacklustre, with holdings of the world's largest gold ETF, New York's SPDR Gold Trust, dropping by nearly 4 tonnes on Wednesday to their lowest in early June.
Although the appetite for gold as a safe store of value is likely to remain supported by concerns over eurozone debt levels, the US deficit and potentially strong inflation in emerging markets, the precious metal could be at risk of extending its short-term correction.
"Market sentiment is shaken, and next week's rebalancing of the commodity index looms large; how much is already priced in is up for debate," said UBS in a note.
"Silver will be one of the biggest losers in the index rebalancing, but commodity contagion has caused the other precious metals to suffer."
"In the midst of a short-term commodity depression, a stronger dollar and, more importantly, growing conviction in the US recovery as macro data improves, gold is struggling to assert itself," UBS added.
Among other precious metals, silver was at $29.33 an ounce against $29.24, platinum was at $1 731.99 an ounce versus $1 726.50 and palladium at $769.47 against $773.
