Gold hits month low as dollar surges on Fed rate hike view

By Maytaal Angel

LONDON (Reuters) - Gold hit a month low on Wednesday, adding to its biggest one day loss in almost two years the previous session on rising expectations the U.S. Federal Reserve will raise interest rates again this year.

The dollar touched a one-month high against a basket of currencies after Federal Reserve chief Janet Yellen said on Tuesday it would be "imprudent" to keep rates on hold until U.S. inflation hits 2 percent.

Markets are pricing in a 76 percent chance the Fed will raise borrowing costs in December, compared with less than 20 percent only a month ago. Several other senior Fed officials are scheduled to speak on Wednesday.

Spot gold sank 0.5 percent to $1,287.19 per ounce by 1227 GMT after tumbling 1.3 percent in the previous session. Earlier it hit its lowest since Aug. 25 at $1,286.01.

U.S. gold futures for December delivery fell 0.9 percent to $1,290.20.

"At the moment the dollar is weighing on gold but it will not continue at this pace (longer term)," said Commerzbank analyst Carsten Fritsch.

"The fact that there's going to be a rate hike in December will cap gains in gold, on the other hand North Korea (tensions) will prevent a price decline, and there's the risk of a (long overdue) stock market correction."

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, in which it is priced.

In the equity markets, prices rose as President Donald Trump's administration prepared to outline a new tax plan to boost growth later this session, boosting assets perceived as risky over those seen as safe havens, like gold.

Limiting losses in gold however were lingering tensions between the U.S. and North Korea.

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

"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."

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.

Silver was flat at $16.76 per ounce, having dropped 2.4 percent in the previous session, its biggest one day fall since mid-August. Earlier, the metal matched Tuesday's month low of $16.76.

Platinum fell 0.7 percent to $918.24 per ounce, after slipping about 2 percent in the previous session, its biggest fall since early July. Earlier, the metal hit a two month low of $914.50.

Palladium slid 0.4 percent to $910.60.

(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by Elaine Hardcastle and Louise Heavens)