Gold edges down as dollar gains on Fed rate hike view

By Nithin ThomasPrasad

REUTERS - Gold inched lower on Wednesday, weighed down by a stronger dollar amid prospects for a December interest rate hike in the United States and ahead of the unveiling of a tax plan by Donald Trump's administration.

Spot gold had declined 0.1 percent to $1,291.81 per ounce by 0729 GMT.

In the previous session, prices fell 1.3 percent in their biggest loss in over two weeks following comments by U.S. Federal Reserve Chair Janet Yellen that the central bank needed to continue gradual rate hikes despite broad uncertainty about the path of inflation

U.S. gold futures for December delivery fell 0.5 percent to $1,294.90.

Shares rose on Wednesday as investors hoped for progress on major tax reform in the United States, while the dollar hovered near one-month highs on growing expectations of a U.S. interest rate increase in December.

Gold is highly-sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the greenback.

A strong U.S. inflation reading could raise expectations for future rate increases.

"As we head towards the end of the year and the expectations for a rate hike in the U.S. continue to build, like last year, this is likely to weigh on gold prices," said James Butterfill, Head of Research & Investment Strategy at ETF Securities (UK) Limited.

Prices of the yellow metal have been "vulnerable to a short-term correction," following the recent strong rally, he added.

However, lingering tensions in the geopolitical arena have capped further losses, analysts said.

"Gold lost what it gained on North Korea (tensions) since Friday after Yellen's comments, said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank.

"But I think the (North Korea) situation is more serious than the Fed's policies. So, gold is supported around here and I expect prices to go back up to $1,300."

President Donald Trump warned North Korea on Tuesday that any U.S. military option would be "devastating" for Pyongyang, but said the use of force was not Washington's first option to deal with the country's weapons programme.

Geopolitical risks tend to boost demand for safe-haven assets such as gold.

Among other precious metals, silver rose 0.3 percent to $16.81 per ounce. In the previous session, prices dropped 2.4 percent, their biggest fall since mid-August

Platinum eased 0.1 percent to $920.99 per ounce, after slipping about 2 percent in the previous session, its biggest fall since early July.

Palladium declined 0.2 percent to $911.90 per ounce.

(Reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by Vyas Mohan and Joseph Radford)