Gold continued to slide in early trade Wednesday, down around $5/oz overnight to a five-week low of $1,212/oz at 1030 GMT, as the recent selloff following the increased certainty of a March rise in US interest rates gathers speed.
The possibility of a lift in interest rates for the second time since December at next week's Federal Reserve meeting has increased to over 80% this week, according to CME Fed Fund futures.
The possibility was below 50% as recently as a fortnight ago, but a chorus of hawkish comments from Fed officials in the last 7-10 days has alerted markets to the increased likelihood of a lift, which would raise the Federal Reserve target rate to 75-100 basis points, its highest since 2008.
Attention has now turned to the next hike, with June standing at over 40% probability and July around 50%, as most observers expect up to three hikes in 2017.
As a non-yielding asset, the opportunity cost of holding gold increases as rates rise, while a strengthening dollar adds extra pressure.
The US Dollar Index was up over 0.10 in early European trade Wednesday, to 101.90 at 1030 GMT, just shy of last week's two-month highs above 102 and close to December's six-year highs of above 103.
"It would seem that the imminent rate hike in the US is weighing heavily on [gold] prices," Commerzbank said in a note Wednesday.
"What is more, surveys were published recently that suggested that the chances of anti-establishment parties winning the forthcoming elections in the Netherlands and France are somewhat lower than previously thought."
Uncertainty surrounding the upcoming European elections in the next two months, as well as ongoing negotiations over the UK's EU exit, added to safe-haven gold demand for much of February.
A strong build-up in speculative longs could have also left gold vulnerable to a change in sentiment.
Net long gold positions on US commodity exchange COMEX jumped 46% to 114,246 contracts in the week to February 28, the most recent Commodity Futures Trading Commission data showed this week.
The money manager positions had risen seven out of the past eight weeks, taking total net length to its highest since mid-November, preceding the recent price fall.
