Gold inches lower on firm dollar, yields; palladium extends fall

By Anushree Ashish Mukherjee

(Reuters) - Gold prices edged lower on Thursday, hurt by a stronger dollar and elevated bond yields as hopes for an early interest rate cut from the U.S. Federal Reserve diminished, while palladium extended its decline on a dim long-term demand outlook.

Spot gold fell 0.13% to $2,031.58 per ounce, as of 1:42 p.m. ET (1842 GMT).

U.S. gold futures settled 0.2% lower at $2,047.9 per ounce.

The dollar index gained 0.1%, making bullion more expensive for other currency holders.

"The reality on the ground is that the U.S. economy continues to be fairly firm and that means that the Fed has very little latitude at this stage to start cutting rates," said Bart Melek, head of commodity strategies at TD Securities.

"For gold to rally, we have to start seeing evidence that the economy indeed is slowing down in a material way and that inflation is trending lower on a sustained basis," Melek added.

Several Fed speakers on Wednesday gave a range of reasons for feeling little urgency to start easing policy in the United States soon, or to move quickly once they do.

Traders now see about 61% probability of an interest rate cut from the Fed in May, according to the CME Fedwatch tool. Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

Spot palladium shed 1.3% to $882.85 per ounce, after hitting $856.38, its lowest in five years, earlier in the session.

Palladium prices fell below those of sister metal platinum for the first time since April 2018 on Thursday, as growing demand concerns and bets on stable supply weighed on the metal.

Both platinum and palladium are used by automakers in catalytic converters to clean car exhaust fumes.

"A renewed switch of metals used in autocatalysts by carmakers is unlikely in the near future as cars are produced over longer cycles. Hence, it is possible that palladium trades at a sustained discount to platinum," UBS analyst Giovanni Staunovo said.

Elsewhere, silver rose 1.6% to $22.55 per ounce and platinum was up 0.6% at $884.91.

(Reporting by Anushree Mukherjee in Bengaluru; Additional reporting by Daksh Grover; Editing by Krishna Chandra Eluri and Shilpi Majumdar)