On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at USD1,656.35 a troy ounce during U.S. morning trade, slumping 0.66%.
It earlier fell by as much as 1.36% to trade at a two-day low of USD1,641.35 a troy ounce. Gold futures were likely to find support at USD1,634.75 a troy ounce, the low from March 14 and short-term resistance at USD1,669.85, the previous day’s high.
Gold prices came off their lows as the precious metal took cues from the currency market. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.21% to trade at 79.84, paring an earlier gain of as much as 0.53%.
Gold prices have been under pressure in recent weeks as investors rebalanced their portfolios and traders unwound long gold positions after the Federal Reserve gave an upbeat assessment of the U.S. economy earlier this month, which reduced expectations for a third round of U.S. monetary easing by the central bank.
Gold has fallen around 8% since late February and are about 14% below the all-time high of USD1,920 per ounce hit in September.
Despite the recent slump, a number of market analysts remain upbeat on the precious metal.
Societe Generale said in a report earlier that gold will have a “sharp” rally as the U.S. boosts monetary stimulus because of a faltering economy in the coming months.
According to SocGen, data on U.S. gross domestic product in the first and second quarters will “surprise dramatically to the downside,” putting pressure on the central bank to introduce further stimulus to boost growth.
Separately, BNP Paribas said while there were some headwinds for gold in the short-term, the bank was maintaining its price forecast for this year at USD1,850 per ounce.
"Beyond the short term, we remain positive on gold's outlook as the fundamentals are still solid. These include high liquidity, low interest rates and sovereign debt concerns," the bank said.
Gold traders were awaiting a speech from Fed Chief Ben Bernanke later in the day at an event in Washington; his comments would be closely watched.
Elsewhere on the Comex, silver for May delivery tumbled 2.1% to trade at USD32.26 a troy ounce, while copper for May delivery sank 1.9% to trade at USD3.836 a pound.
Copper prices came under heavy selling pressure as growing fears over a deeper-than-expected slowdown in Chinese economic growth sparked concerns over future demand prospects for the industrial metal.
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