Gold futures fell by almost 3% Thursday to tally a two-session loss of $22 an ounce as the dollar strengthened against some of its counterparts and traders digested news of rising production in China and major mine expansion in South Africa

The recent slide in oil prices to their lowest levels in over five months added to gold's decline.

Gold for December delivery closed down $16.90 at $624.90 an ounce on the New York Mercantile Exchange, after trading at a low of $621. On Wednesday, the contract lost more than $5 an ounce as dollar strength and weak oil prices gave traders an excuse to cash in some of the metal's recent gains.

"In addition to fresh confirmation of rising Chinese gold production (+9% in the January through June time frame), the market was also presented with ongoing dialogue about a significant mine expansion effort by Gold Fields in South Africa," Nell Sloane, an analyst at NSFutures.com said in daily commentary.

"While the mine expansion was known in the action yesterday, the trade is seeing the details of an effort to 'go deep' and hopefully increase production by as much as 10.8 million ounces," she said.

Gold Fields announced early Thursday that it will invest 4.7 billion rand to deepen the Driefontein and Kloof Gold Mines in South Africa, its flagship operations. The projects will access an additional 10.8 million ounces of gold below the current infrastructure of the two mines, it said.

The investment will extend the firm's production profile to at least 2035, said Chief Executive Officer Ian Cockerill.

But Brien Lundin, editor of Gold Newsletter said he didn't believe the Gold Fields' announcement had any impact on the gold price Thursday.

"The expected production growth is too far off in the future, and spread over too many years, to have any significant impact on the current supply/demand dynamic," he said.

And it "does little to alter the solidly established trend of declining gold production worldwide," he said.

Shares of Gold Fields were last down 4.8% at $20.61, following a broad decline among the metals shares.

Tracking the metals equities as a whole Thursday, the CBOE Gold Index was at 152.68 points, down 2.6%, and the Philadelphia Gold and Silver Exchange Index fell 2.4% to 146.61 points. The Amex Gold Bugs shed 2.6% to trade at 352.83 points.
'Oil-led' dips

Gold remains "at risk to further pockets of oil-led liquidation dips," but should find support from physical buying heading into the Indian wedding season, said James Moore, analyst at TheBullionDesk.com.

"Gold's failure to clear $640 suggests the yellow metal needs to spend more time in the $605-$630 area before tracking higher towards year end," he said.

Indeed, gold prices have been pressured by recent weakness in crude futures. Crude futures touched a low under $67 a barrel Thursday as U.S. gasoline supplies rose for a third-straight week.

The "drop in gold is almost completely due to the impressive drop in the oil price," said Gold Newsletter's Lundin.

"There has been a substantial geopolitical premium built into both the oil and gold price throughout this year, and this premium has diminished in recent trading sessions," he said.

Looking ahead however, "the slack in speculative demand will soon be taken up by physical buying, as we enter a time of high seasonal gold demand," he said, and that will help support gold prices over the longer term.
Dollar and data

Elsewhere, the dollar was mixed, falling against the yen but gaining on the British pound and tapping a three-week high versus the euro.

The greenback showed little reaction to U.S. initial jobless claims data, which showed that the number of people collecting state unemployment benefits over the past four weeks rose to the highest level since February.

Rounding out the economic data Thursday, inventories of U.S. wholesalers rose 0.8% in July, beating economists' expectations, while sales at the wholesale level rose 0.4%, the smallest gain since February.

"The precious metals complex is certainly unable to ignore a fairly glum continuing jobless claims number ... which has many gold bugs wondering just who (in the USA at least) will be spending what discretionary income on jewelry gifts in the coming season," said Jon Nadler, an investment products analyst at Kitco.com.

"Rising wholesale inventories may have also played a part in [the] crumbling of prices, as speculators weighed just how sizeable the economic slowdown may be," he said.

"About the only glimmer of hope at this point remains the probability that rates won't be lifted in two weeks as the economy may be in need of a longer respite of easy credit," he said.

On the political front, key European nations accused Iran Thursday of attempting to split the international community, the Associated Press reported. European Union negotiators are expected to hold talks with Iranian officials on Saturday, the AP said.

Israel started to lift its air and sea blockade of Lebanon Thursday. The blockade was imposed at the start of the conflict with Hezbollah in July.

Against this backdrop, other metals lost ground. December silver closed down 50.5 cents at $12.695 an ounce after closing Wednesday at its highest level since May. October platinum lost $18.10 to close at $1,256.90 an ounce and December palladium dipped $4.05 to end at $355.50 an ounce. December copper lost 3.15 cents to $3.648 a pound.

On the supply side, gold inventories were down 99,932 troy ounces at 7.83 million troy ounces as of late Wednesday, according to Nymex data. Silver supplies fell by 25,394 troy ounces to 104.2 million. Copper stocks rose by 401 short tons to 11,943 short tons.