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Gold slips on higher dollar as prospect of Dec U.S. rate hike increases

NEW YORK/LONDON (Reuters) - Gold prices fell on Tuesday as the dollar strengthened on increasing bets that the Federal Reserve will raise U.S. interest rates in December.

A saleswoman shows a gold earring to customers at a jewellery showroom in Mumbai, India, July 21, 2015. REUTERS/Shailesh Andrade

Chicago Fed President Charles Evans said in Sydney he “could be fine” with raising rates in December, but would first like to see how the economy and inflation progressed.

Traders have priced in a 70 percent chance that the Fed will raise rates at a Dec. 13-14 meeting, up from 66 percent early on Friday, according to CME Group’s FedWatch tool.

Spot gold had dropped 0.3 percent at $1,255.7 an ounce by 1:47 p.m. EDT (1747 GMT), while U.S. gold futures settled down 0.4 percent at $1,255.9 per ounce.

“A stronger dollar is weighing on most commodities and there is the outlook for the Fed potentially raising rates in December, which is damaging for gold,” ING commodity strategist Warren Patterson said.

On Friday, bullion touched a four-month low of $1,241.20 an ounce after forecast-beating U.S. data and comments from Fed officials saying there was a strong case for raising rates.

The dollar hit an 11-week high against a basket of six major currencies, making dollar-denominated gold more expensive for holders of other currencies. [FRX/]

“The market’s starting to get some belief that the Fed’s going to follow through,” said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle, referring to expectations for a rate hike in December.

“Everything still seems to be pointing to slow growth. I think the gold market is coming to grips with that.”

Since gold pays no interest, the precious metal is highly sensitive to increases in U.S. interest rates.

Investors awaited Wednesday’s release of minutes of the latest Federal Reserve Open Market Committee meeting to see how close the central bank came last month to hiking rates.

Among other precious metals, spot platinum was down 1.5 percent at $946.25 an ounce after falling to a six-month low at $941.90.

Palladium was down 2.7 percent at $646.75 after falling to the lowest in nearly three months at $644.97 an ounce.

UBS Wealth Management Research said in a note that it introduced a new overweight palladium versus underweight U.S. natural gas position in its relative commodity preference.

“The white metal is likely to benefit from strong car sales, while milder temperatures are likely to weigh on US natural gas prices,” UBS said.

Silver was down 0.9 percent at $17.47.

Addional reporting by Swati Verma in Bengaluru; editing by Adrian Croft and David Gregorio