Lower interest rates reduce the opportunity cost of holding non-yielding gold
Gold eased on Thursday as risk appetite was boosted by positive trial results of an experimental COVID-19 treatment, although the Federal Reserve's decision to keep interest rates near zero kept bullion above the $1,700 per ounce level.
Spot gold fell 0.1 per cent to $1,710.21 per ounce by 0519 GMT (10:49 am in India). US gold futures rose 0.8 per cent to $1,726.80 per ounce.
"We have risk sentiment blossoming again, and that's just not a good optic for gold to go higher," said Stephen Innes, chief market strategist at financial services firm AxiCorp.
"But the massive support we're getting from the Fed is underpinning the general trend of support for gold... Gold is going to look very attractive as it doesn't cost anything to hold it right now."
Risk sentiment got a boost after the top US infectious disease official said early clinical trial results showed Gilead Sciences Inc's experimental antiviral drug remdesivir helped patients recover more quickly from illness caused by the coronavirus.
Asian stocks rose to a fresh seven-week high on the news, while the US dollar held near a two-week low after the US central bank left its interest rates near zero and repeated a vow to use its "full range of tools" to shore up an economy hammered by the pandemic.
Lower interest rates reduce the opportunity cost of holding non-yielding gold, which also tends to benefit from widespread stimulus measures as it's often seen as a hedge against inflation and currency debasement.
Investors also took stock of data showing factory activity in China expanded for a second straight month in April as more businesses resumed work, but a worsening slump in export orders pointed to a long road to recovery.
Market participants now await a policy decision from the European Central Bank due later on Thursday, amid pressure on the central bank to deploy even more firepower to prop up an economy that could shrink by a tenth this year.
Pointing to the growing economic pain from the virus outbreak and bolstering demand for safe havens such as gold, the US economy contracted in the first quarter at its sharpest pace since the Great Recession, while economists expect an even sharper contraction in the second quarter.
Among other precious metals, palladium rose 0.6 per cent to $1,948.51 an ounce, platinum gained 0.1 per cent to $775.19 per ounce, while silver slipped 0.6 per cent to $15.27 per ounce.
