Gold prices finished lower on Thursday, suffering from their largest one-day decline in more than a month.
Traders grew wary after the precious metal's rise to multi-month highs despite an overall rise in Treasury yields and a climb in key U.S. benchmark stock indexes to record levels.
"Rising bond yields and record-high equities don't usually go with surging gold prices," said Adrian Ash, director of research at BullionVault. "So after catching everyone off-guard at New Year, gold is settling back to its more normal patterns against other assets."
February gold GCG8, +0.29% fell $12, or 0.9%, to settle at $1,327.20 an ounce. That was the biggest single-session dollar and percentage fall since Dec. 7, according to FactSet data. On Wednesday, the contract settled at its highest level since Sept. 8. The yellow metal has only posted declines in three out of the 12 sessions so far this year.
"Gold is due a correction after its $100 rally" since the Federal Reserve lifted a key U.S. interest rate in mid-December, said Mark O'Byrne, research director at GoldCore. "A near 8% gain in a month is quite a move up in a short period of time and ordinarily one would expect a correction."
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He also pointed out that the "sharp fall in bitcoin and cryptocurrencies is leading to an increase in demand for physical gold, and there is robust demand from China ahead of the Chinese New Year."
He's "cautious" on gold in the short term, but "very positive in the medium term and sees gold over $1,500 in 2018."
Meanwhile, the financial markets also looked to developments linked to a potential U.S. government shutdown this weekend, which may provide some safe-haven gains for gold if it looks like a spending agreement won't be reached by 12:01 a.m. Eastern Time Saturday. Lawmakers have been trying to reach a deal on immigration, which is viewed as crucial to breaking the deadlock.
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The buck, which has been under pressure recently, found some strength late Wednesday, with the greenback gaining around 0.6% against the euro, although the dollar pared some of the gains early Thursday.
Dollar gains came after the Federal Reserve's Beige Book of economic conditions was released late Wednesday. It said the effect of the Republican tax reform was so far having a muted effect on the economy, but that the U.S. central bank's plans for three interest-rate increases this year was still on track.
Gold, which is priced in dollars, often trades inversely with the dollar, as moves in the U.S. unit can influence the attractiveness of the precious metal to holders of other currencies.
Among economic data Thursday, weekly jobless claims saw their largest one-week decline since 2009 to 220,000-the lowest level in nearly 45 years. Housing starts, however, dropped 8.2% in December and the Philadelphia Fed manufacturing index dropped to a five-month low in January.
Rounding out action in the metals, March silver SIH8, +0.42% fell 1.2% to $16.954 an ounce, while copper HGH8, -0.58% for the same month rose 0.3% to $3.199 a pound.
March palladium PAH8, +0.50% shed 1.5% to $1,093.30. The contract ended at $1,109.70 an ounce on Wednesday, another record settlement. April platinum PLJ8, +0.94% lost 0.4% to finish at $1,007.20 after ending at its highest since early September on Wednesday.
Among exchange-traded funds, the SPDR Gold Shares GLD, +0.44% fell less than 0.1%, while the iShares Silver Trust SLV, +0.50% lost 0.4%.