December 01,2016

Gold sinks to lowest in 10 months; firm dollar, chance of U.S. rate hike weigh

 (Reuters) - Gold dropped to its lowest price in nearly 10 months on Thursday as the dollar held firm around 9-1/2 month highs against the yen, boosted by inflation expectations, while growing odds of a U.S. interest rate hike also added pressure.

    Spot gold was down 0.4 percent at $1,168.60 an ounce by 0236 GMT. The metal hit its lowest since Feb. 5 at $1,163.45 earlier.

    U.S. gold futures  dropped 0.3 percent at $1,167.20 per ounce.

    The U.S. dollar was broadly firm, hitting 9-1/2 month highs against the yen, as oil prices surged after OPEC agreed to output cuts - lifting inflation expectations and U.S. bond yields. 

    "Gold has been sensitive to the U.S. monetary policy and dollar movements," said Mark To, head of research at Hong Kong's Wing Fung Financial Group. "Inflation as well as pace of interest rate hike expectations among the investors are increasing along with the opportunity cost of holding gold."

    "That's why gold is coming under selling pressure," To said. "The trading range is moving lower and it is still going to move down further south to $1,148."

    Strong U.S. data on Wednesday pointed to economic strength which could further cement the case for an interest rate hike from the Federal Reserve this month. 

    Dallas Fed Bank President Robert Kaplan suggested on Wednesday it was time for an interest-rate raise as the U.S. economy was making good progress toward full employment with inflation heading toward the Fed's 2 percent goal.

    The Fed next meets on Dec. 14-15 and traders see about a 90 percent chance that policymakers will raise rates then. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

    Elsewhere, political uncertainty in Europe persisted ahead of Italy's referendum on Sunday, capping the euro, while European Central Bank (ECB) President Mario Draghi warned of risks to the continent's prosperity. 

    Euro zone inflation hit a 31-month high in November, providing modest relief for the ECB ahead of an interest-rate decision next week. 

    SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, said its holdings fell 0.13 percent to 883.86 tonnes on Wednesday. 

    "In the near term, a strong U.S. dollar, equity gains, and higher bond yields sentiment are likely to weigh on silver," said James Steel, chief metals analyst for HSBC Securities.

    Silver  fell 0.7 percent to $16.36 an ounce while platinum  dipped 0.66 percent to $905.

    Palladium  eased 0.5 percent to $765.97. The metal touched its highest since June 2015 at $774.20 in the previous

session.