Gold drops on dollar after strong U.S. data

By Clara Denina

LONDON (Reuters) - Gold dropped on Wednesday on a rebounding dollar after strong U.S. economic data that heightened expectations of a rate hike from the Federal Reserve next month.

Manufacturing output rose well above economists' expectations in October and a gauge of U.S. business investment plans surged.

Spot gold fell 0.6 percent to $1,068.96 an ounce by 1531 GMT. U.S. gold was down 0.5 percent at $1,068.80 after a near 1 percent gain in the previous session after news that Turkey shot down a Russian jet near the Syrian border.

"The Turkey-Russia tension has only had a limited impact and now gold is back on its downward trend mainly due to the dollar and rate hike expectations," Commerzbank analyst Daniel Briesemann said.

"Uncertainty before the next Fed meeting will remain high and prices could head even lower in the next couple of weeks."

The Russia-Turkey tensions initially triggered a sell-off in equities and the dollar, while boosting safe-haven yen, gold and government debt.

But a rebound in the dollar, which rose 0.5 percent against a basket of currencies, weighed on dollar-denominated gold, making it more expensive for foreign currency holders.

Gold was not too far from a near-six-year low of $1,064.95 hit last week on increasing views that the Federal Reserve will hike U.S. rates next month for the first time in nearly a decade. Higher U.S. rates would increase the opportunity cost of holding non-yielding bullion, weighing on prices.

Liquidity could now thin ahead of the U.S. Thanksgiving holiday on Thursday.

Silver was down 0.9 percent at $14.08 an ounce, having hit a six-year low of $13.86 earlier this week.

Platinum fell to a fresh seven-year low of $827.75 an ounce, while palladium fell 0.9 percent to $530.75.

"Normally, PGMs (platinum group metals) are sensitive to economic growth," HSBC said in a note, adding that an upward revision to 2.1 percent in the U.S. third quarter GDP was not

enough to galvanize prices.

"We do not expect an early rally in the PGMs, but believe them to be oversold on a fundamental basis."

(Additional reporting by A. Ananthalakshmi in Singapore, editing by Mark Heinrich)