Gold prices dip on expected U.S. Fed rate hike in June

By Zandi Shabalala

LONDON (Reuters) - Gold hit a more than three-week low on Wednesday as the dollar firmed on expectations of a U.S. interest rate increase in June and the market discounted a surprise win by France's far-right presidential candidate.

The U.S. Federal Reserve is expected to hold interest rates steady after concluding its two-day meeting on Wednesday, but it might focus on future rate hikes, which would reduce demand for non-interest bearing gold.

Spot gold was down 0.6 percent at $1,251.68 per ounce as of 1458 GMT after touching its lowest since April 10 at $1,248.90.

U.S. gold futures fell 0.3 percent to $1,252.20 an ounce.

"The focus for gold today is definitely on the Fed and markets are now speculating that next hike will take place at the June FOMC meeting," said Quantitative Commodity Research analyst Peter Fertig.

"We have the typical drivers for gold: the U.S. interest rate ... the U.S. dollar and also a decline of political uncertainty in Europe," he said.

As well as reducing demand for non-interest bearing gold, higher rates would make the dollar-denominated metal more expensive for buyers paying with other currencies.

Traders are pricing in a 70 percent chance of a June rate increase, according to the CME Group's FedWatch Tool.

The dollar firmed 0.16 percent at 99.132 against a basket of major currencies. [USD/]

European stocks hovered near 20-month highs after strong gains this week on forecast-beating company earnings and signs of global economic strength. [MKTS/GLOB]

In the French elections, the top two presidential rivals go head-to-head on Wednesday in a televised debate in the last encounter before Sunday's run-off in which opinion polls predict a win by centrist Emmanuel Macron.

Fears that far-right candidate Marine Le Pen could sweep to a surprise victory had buoyed gold in recent sessions due to its safe-haven appeal.

"There is a clear lead by Macron ... so there is less need to hold gold," Fertig said.

Silver was down 0.12 percent at $16.78 per ounce, after touching a three-month low of $16.71.

Platinum hit a four-month low of $911, before moderating to trade 0.7 percent down at $915.50.

Palladium slipped 1.8 percent to $800 per ounce.

(Additional reporting By Nallur Sethuraman in Bengaluru, editing by David Evans)