Gold drops towards six-year low on dollar, US rate hike view

Silver dropped to its lowest level in more than six years and platinum to a seven-year trough

Gold fell 1% on Monday, nearing last week's 2010 low on a robust dollar and upbeat comments from Federal Reserve officials on a possible US rate hike next month.

White metals tracked gold lower, with silver dropping to the lowest level in more than six years and platinum to a seven-year trough.

Spot gold

US gold futures for December delivery settled down 0.9% at $1,066.80 an ounce after hedge funds and money managers switched to a bearish position.

The dollar rose as much as 0.4% against a basket of six major currencies to an eight-month high after San Francisco Fed President John Williams cited a "strong case" for raising interest rates in December as long as US economic data does not disappoint.

The euro fell on expectations that the European Central Bank will ramp up its monetary stimulus next month.

A strong US currency makes dollar-denominated gold more expensive for foreign holders while higher US interest rates increase the opportunity cost of holding non-yielding assets such as gold.

"I wouldn't be surprised to see prices fall below $1,000 as expectations of a rate hike affect sentiment," Natixis analyst Bernard Dahdah said.

"There have been substantial outflows from ETFs and central bank demand only shows additions from gold-producing countries, so generally speaking fundamental demand isn't really there to support prices."

Assets in SPDR Gold Trust, the world's top gold-backed exchange-traded fund (ETF), slid 0.18% to 660.75 tonnes on Friday, the lowest since September 2008.

"The dollar is strong, short-term interest rates are rising, but the nervousness about going short is that everyone knows that's bad for gold and how much of it is priced in," Macquarie analyst Matthew Turner said.

Silver fell as much at 2.2% to $13.86 an ounce, the lowest since August 2009 while platinum fell 1.5% to a seven-year low of $839.50 an ounce on worries about demand.

"The strengthening US dollar along with the rising Treasury yields have increased the cost of carry for all precious metals, and has convinced inventory holders to be increasingly willing to part with their hoard," TD Securities said in a note.

Palladium fell 4.4% to $535.25 an ounce.