LONDON: Gold fell back below $1,270 an ounce on Thursday as a strengthening dollar prompted some buyers to cash in gains after the metal posted its biggest daily rise this month in the previous session.

Prices remained supported, however, by expectations the Federal Reserve will hold off raising interest rate at its June meeting, after hiking them for the first time in nearly a decade in December.

The metal has risen nearly 20 per cent this year as expectations for a near-term rate rise evaporated. Rising rates increase the opportunity cost of holding non-yielding gold.

Spot gold was down 0.7 per cent at $1,268.13 an ounce at 0930 GMT, while US gold futures for June delivery were down $5.60 at $1,269.80. The metal hit a 15-month high last week at $1,303.60, before slipping back below $1,300.

“The weakness in gold which we’re experiencing today is mainly due to the strength in the dollar, and also we’re approaching close to a very important level of $1,300,” Naeem Aslam, chief market analyst at Think Forex, said.

The dollar index rose 0.2 per cent on Thursday, lifted by a drop in the yen as investors sold the currency amid speculation the Bank of Japan could decide to expand its monetary stimulus as soon as next month.

Underlining optimism towards the metal, however, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, rose 2.7 tonnes to 841.9 tonnes on Wednesday, the highest since December 2013.

Surging inflows into gold-backed exchange-traded funds drove global gold demand to its highest first-quarter total on record this year at 1,290 tonnes, the World Gold Council (WGC) said, despite a near 20 per cent drop in jewellery demand.

“While we hardly expect to see a repeat of the strong investment demand of the first quarter, jewellery demand, which is generally regarded as more stable, should pick up again, meaning that the gold price should be well supported in the medium term,” Commerzbank said in a note.

Demand in India, the world’s second-biggest gold consumer, could rise as much as 10 per cent in 2016 on good monsoon rainfall, the WGC added, despite consumer demand falling nearly 40 per cent in the first quarter.

Spot silver was down 0.8 per cent at $17.25 an ounce, platinum was down 1.1 per cent to $1,051.25, and palladium

was down 0.7 per cent at $598.97.

GFMS analysts at Thomson Reuters said in a report on Thursday that platinum prices were likely to have already posted their lows for the year, with a return to supply shortfalls set to hold the metal at an average $1,005 an ounce in 2016. It hit a seven-year low of $806.31 an ounce in January.