By Jan Harvey
LONDON (Reuters) - Gold fell to a three-week low on Thursday, extending the previous day's slide, after minutes from the Federal Reserve's April policy meeting signalled that it could raise U.S. interest rates as soon as next month.
The minutes indicated that the U.S. central bank is likely to raise rates if economic data points to stronger second-quarter growth as well as firming inflation and employment.
Gold is highly sensitive to interest rate hikes, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Spot gold was down 0.3 percent at $1,253.71 an ounce at 1132 GMT, with U.S. gold futures for June delivery falling by $19.70 to $1,254.70. Spot prices lost 1.7 percent on Wednesday.
"The precious metal is under selling pressure as the odds for a June rate hike have surged," said Naeem Aslam, chief market analyst at Think Forex. "Gold bears could not stay reticent and they are taking advantage of this situation by pushing the price lower."
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The dollar jumped in morning trade to its highest against a basket of currencies since late March. At 1147 GMT it was up 0.2 percent .
Stock markets also fell while Germany's benchmark 10-year Bund yield reached a two-week high on the talk of a June rise in U.S. interest rates.
Gold had risen nearly 20 percent this year on speculation that the Fed will hold off from further increases on concerns over volatility in global markets.
Traders are now awaiting statements from Fed Vice Chairs William Dudley and Stanley Fischer, expected later on Thursday, for more clues on Fed thinking.
The world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , said its holdings were unchanged on Wednesday. The fund has had inflows of more than 50 tonnes so far this month. [GOL/ETF]
Appetite for gold overnight in Asia, home of the world's biggest bullion markets, was soft despite Wednesday's price drop.
"Bargain-hunting kept gold buoyant during early Asian trade today. However, weakness soon returned," MKS said in a note.
"Muted interest in China at an onshore premium around $2.50 did little to support prices."
In other precious metals, silver was down 1.4 percent at $16.61 an ounce, platinum slipped by 0.5 percent to $1,018.80 and palladium gained 0.2 percent to $573.05.
Silver and palladium earlier touched one-month lows of $16.58 and $568.10 respectively.
(Additional reporting by Vijaykumar Vedala and Koustav Samanta in Bengaluru; Editing by Ruth Pitchford and David Goodman)