Gold price dives early Friday

The spot gold price is being hammered down  $45, or 3.1%, to $1,422 an ounce in early trade in New York on Friday.

The steep losses to two-week lows follow declines yesterday when the metal was hurt by robust employment data from the US. The number of Americans people who applied for unemployment-insurance benefits fell to the lowest level since January.

The news boosted the value of the dollar, which strengthened again on Friday. Investors have been using gold as an inflation hedge and storer of wealth amid currency depreciation, but that trade is now breaking down.

Gold has fought back since dropping $200 an ounce to a multi-year low of $1,326 an ounce over two days mid-April as bargain hunters come back into the market, but on Friday a number of banks cut their forecasts for the gold price.

Deutsche Bank cut its forecast for gold prices for the next three years because of dollar strength. The usually bullish German bank lowered its 2013 gold outlook 6% to $1,533 from $1,637. It now expects gold in 2014 to average $1,500 – a 15% drop in its outlook –  and $1,450 in 2015, a 25% downgrade.

In an interview with Kitco before Friday’s slide, Michael Widmer, metals strategist at Bank of America Merrill Lynch, said the “short-covering rally can continue but if people didn’t buy gold at $1,600 why would they do it again. I think there is the possibility that prices could drop to $1,200 in the first half of the year.”

French investment bank BNP Paribas also cut its outlook for this year and next, but did say the yellow metal could regain the $1,600 an ounce level within six months. The bank now sees gold averaging $1,580 a troy ounce this year, down 5% on its previous forecast. In 2014, it expects gold to average $1,520/oz, also down 5% on its earlier outlook.

The gold price is down 15% this year and April's dramatic fall – the worst since the start of futures trading in gold – dragged the metal it into official bear territory after a 12-year bull run.