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NEW YORK/LONDON (Reuters) - Gold fell more than 1 percent to a five-year low on Wednesday as a bounce in the dollar fueled downside momentum, with investors continuing to pull away from the metal after its dramatic slide earlier this week.
A looming increase in U.S. interest rates, the first in nearly a decade, has diminished gold's appeal to investors, encouraging more sellers in the market after Monday's 3 percent rout, the biggest one-day drop since September 2013.
Holdings in the world's biggest gold-backed exchange-traded fund, SPDR Gold Shares (GLD), fell for a fourth day on Tuesday by another 4.8 tonnes, the least since 2008. Its reserves have nearly halved from their 2012 peak.
Spot gold XAU= was down 0.8 percent at $1,092.40 an ounce at 2:41 p.m. EDT, after touching a five-year low at $1,086.90. U.S. gold futures GCv1 for August delivery settled down $12 an ounce at $1,091.50.
Gold's decline on Wednesday picked up momentum after the dollar .DXY moved into positive territory against a basket of currencies.
"We have a lot of pockets of weakness currently in the gold market, and that is what is feeding the bearish sentiment we see," Julius Baer analyst Carsten Menke said.
"The money managers are net short and that is relatively rare."
On Monday, a large selloff came on the back of huge volumes traded on the Shanghai Gold Exchange after investors dumped more than $500 million of bullion in New York in four seconds during early Asian trading hours.
That sparked a slide through key chart levels, triggering stop-loss orders that added to momentum. From a technical perspective, gold remains under pressure.
"Our next price target is seen at $1,044, the 2010 low, followed by $1,006, the late 2009 high," technical analysts at ScotiaMocatta said in a note.
"Only a close back above $1,133 will stabilize the metal."
The gold rout has spurred a buying spree of bullion coins in the United States, dealers said; government data showed July sales at their highest in more than two years.
"Investors will likely liquidate gold positions when U.S. dollar and U.S. rates go up in an environment where inflation expectations remain muted and investor sentiment is constructive," said ABN Ambro analyst Georgette Boele in a note.
Spot platinum XPT= was down 0.2 percent at $975.50 an ounce, while palladium XPD= was down 0.1 percent at $625, both trading near multi-year lows. Silver XAG= was down 0.6 percent at $14.74 an ounce.
Additional reporting by Manolo Serapio Jr. in Manila; Editing by Dale Hudson and Susan Thomas