Gold drops on dollar, but political risk tempers losses

By Clara Denina

LONDON (Reuters) - The price of gold edged down on Wednesday on a rebounding dollar and expectations of a U.S. rate hike next month, but the downside was capped by retail demand emerging on tension between Turkey and Russia.

Turkey shot down the Russian jet near the Syrian border on Tuesday, saying the plane had violated its air space, in one of the most serious publicly acknowledged clashes between a NATO member country and Russia for half a century.

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

Spot gold was down 0.1 percent at $1,074.76 an ounce by 1247 GMT. U.S. gold was unchanged on the day after a near 1 percent gain in the previous session.

"We have seen some profit taking on the highs and some modest buying on concerns of tension between Russia and Turkey," bullion broker Sharps Pixley's CEO Ross Norman said.

"A positive tone to the market can be expected with some caution, bearing in mind that we are expecting the rate rise from the Federal Reserve."

A rebound in the dollar, which rose 0.4 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.

Data on Tuesday supported views of a December rate hike. The U.S. economy grew at a healthier clip in the third quarter than initially thought.

Traders will be eyeing more U.S. data due later on Wednesday, including weekly jobless claims and October new home sales, to gauge the strength of the economy.

Liquidity, however, could be 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 was trading just above a seven-year low, down 0.1 percent at $838.85 an ounce, while palladium rose 0.5 percent to $538.60.

"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 William Hardy)