Gold retreats as dollar gains upper hand

Gold retreated on Thursday as rival safe-haven dollar advanced and outweighed support for bullion from lingering economic risks, while traders digested the impact of weak data on the interest rate outlook.

Spot gold was last down 0.75% to $2,014.3021 per ounce, while U.S. gold futures settled down 0.8% to $2,020.50.

Gold popped up after data showed a jump in weekly jobless claims and the smallest annual increase in producer prices last month in over two years.

However, the metal soon gave up those gains as the dollar rose, making bullion more expensive for overseas buyers.

The banking situation with PacWest has prompted some safe haven demand into the U.S. dollar, said Jim Wyckoff, senior analyst at Kitco Metals.

Investors also took stock of comments from Minneapolis Fed chief Neel Kashkari that an extended period of high rates would be necessary if inflation stayed stubbornly high.

While this weighs on sentiment for gold "to a certain extent, the precious metal remains in its uptrend channel established in November," said Alexander Zumpfe, a precious metals dealer at Heraeus.

Gold is traditionally considered a hedge against inflation, but elevated interest rates dim appeal for zero-yield bullion.

On Wednesday, data showed the annual increase in U.S. consumer prices slowed to below 5% in April for the first time in two years, but remained well above the Fed's 2% target.

With inflation still sticky amid a slow deterioration in the U.S. economy, the Fed is less likely to feel the need to hike rates further, keeping gold in a sideways to higher trend, said David Meger, director of metals trading at High Ridge Futures.