Gold closes in on 5-1/2-year low as US rate worries weigh

Selling pressure supported by expectations that the US Fed will raise interest rates this year

Gold dropped for a third session in four on Tuesday, closing in on a 5-1/2-year low, with selling pressure supported by expectations that the Federal Reserve is set to raise interest rates this year.

Investors looked past data on Monday that showed US manufacturing activity falling short of estimates, instead awaiting the crucial nonfarm payrolls number due on Friday.

Spot gold

US gold for December delivery fell 0.6% to $1,082.50 an ounce.

The US Institute for Supply Management's index of national factory activity slipped to 52.7 in July, falling short of expectations that it would match last month's reading of 53.5. But being above 50 shows the US manufacturing sector continues to expand.

Amid an improving labour market, economists still expect the Fed to raise interest rates this year, perhaps as early as its next policy meeting in September. That could mean further price losses for non-interest bearing gold.

A key global commodities price benchmark sank to a 12-year low on Monday as copper and sugar prices hit fresh multi-year lows and oil fell below $50 for the first time in six months, as fears about a hard economic landing in China and global glut deepened. 

Some members of South Africa's National Union of Mineworkers rejected a pay hike of up to 17% by gold producers, raising the threat of a sector-wide fallout after another union spurned the same offer.