Gold price declines on increased chances of December US rate hike

London (Oct 11)  Gold prices edged lower on Tuesday as the dollar strengthened on increasing bets that the US Federal Reserve would raise US interest rates in December.

Speaking to reporters in Sydney, Chicago Fed president Charles Evans said on Tuesday that he "could be fine" with raising US interest rates in December, but that he would prefer to see how the economy and inflation progressed before deciding.

Traders had priced in a 70% chance that the Fed would hike rates at a December 13-14 meeting, up from 66% early on Friday, according to CME’s FedWatch tool.

Spot gold had dropped 0.2% to $1,256.31 an ounce by 9.44am GMT. US gold futures also fell 0.2% to $1,258.60 an ounce.

Bullion touched a four-month low of $1,241.20 an ounce on Friday and registered its biggest weekly drop for 11 months, down 4.5%, after forecast-beating US data and comments from Fed officials saying there was a strong case for raising rates.

"Funds have been quite reluctant to let go of the longs, but once the $1,300 level was broken, the floodgates just opened," Saxo Bank senior manager Ole Hansen said. "We are highlighting the risk that the dollar will move higher because of higher interest 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. Investors are also waiting for Wednesday’s release of minutes of the latest Federal Reserve federal open market committee meeting to see how close the central bank was to hiking rates in September. Gold is highly sensitive to increases in US interest rates, which can lift the opportunity cost of holding noninterest-bearing gold.

Among other precious metals, silver was unchanged at $17.62 an ounce.

Platinum was 0.1% lower at $959.80 an ounce and palladium fell 0.2% to $663.40.

Source: BDlive