Gold dips towards three-month low on dollar, U.S. rate rise bets

By Clara Denina

LONDON (Reuters) - Gold fell towards a three-month low on Tuesday as the dollar hit a seven-month peak on prospects the U.S. Federal Reserve will raise interest rates in December.

A forecast-beating U.S. October employment report on Friday pushed up bets the Fed will increase rates for the first time in almost a decade, sending non-interest paying gold to $1,084.90 an ounce, the lowest level since August.

"I don't think a December rate hike is completely priced in ... we can see more losses in gold," Natixis analyst Bernard Dahdah said.

"Once the news comes out, the attention will turn into how quickly the cycle will tighten and the higher the rates, the lower the price of gold."

Spot gold was down 0.3 percent at $1,088.15 an ounce by 1512 GMT, while U.S. gold for December delivery lost $1.00 to $1,086.90 an ounce.

Bullion has fallen in nine of the past 10 sessions, a move that has weakened its technical picture. The next support is set at the 5-1/2 year trough of $1,077 hit in July, analysts said.

The dollar rose 0.4 percent against a basket of currencies, hitting a new seven-month peak. [FRX/]

The U.S. currency has strengthened against the euro after four governing council members said a consensus was forming at the European Central Bank to take one of its benchmark interest rates deeper into negative territory in December.

The ECB last month raised the prospect of more monetary easing at its Dec. 3 meeting to combat ultra-low inflation.

"It's very possible we are going to see a breach of the $1,077 support ... particularly if the ECB starts to expand their quantitative easing programme in December, then we may see some further strength in the dollar," Mitsubishi Corp strategist Jonathan Butler said.

After a potential rate hike in December, the U.S. central bank may take its time in raising rates further, which should be broadly supportive for gold, INTL FCStone analyst Edward Meir said.

But Meir said the metal faces more weakness in the near term and "poor technicals and a buoyant dollar do not help gold's upside case much either".

Spot platinum fell 1.7 percent to a five-week low of $895 an ounce. Palladium gained 0.6 percent to $599.50 an ounce, partially recovering Monday's 4 percent fall to $592.50, its lowest in seven weeks. Silver slipped to $14.27, its lowest since Sept. 15.

(Additional reporting by Manolo Serapio Jr. in Manila; Editing by Dale Hudson and David Evans)