Gold prices slip as U.S. rate hike views boost dollar

By Swati Verma

BENGALURU (Reuters) - Gold prices edged lower on Tuesday after two sessions of gains, with the U.S. dollar strengthening amid speculation the Federal Reserve will raise U.S. interest rates in December.

Spot gold had dropped 0.2 percent to $1,257.06 an ounce by 0810 GMT.

U.S. gold futures fell 0.1 percent at $1,259.10 an ounce.

Gold had risen for two consecutive sessions, after first touching a four-month low of $1,241.20 an ounce on Friday. Spot gold ended last week about 4.5 percent lower, its biggest weekly decline since November 2015.

"After the drastic drop, the optimistic mood in gold markets has reduced," said Jiang Shu, chief analyst at Shandong Gold Group.

"Gold prices will be in further decline due to a rise in the U.S. dollar."

The dollar index, which measures the greenback against a basket of six major currencies, was up 0.3 percent at 97.213 on Tuesday. [USD/]

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

"The broad-based dollar strength continued to cap the upside for (precious) metals throughout mid-morning and into early afternoon with little in way of data to drive markets," said Alex Thorndike, senior precious metals dealer at MKS PAMP Group, in a market note.

The metal is highly-sensitive to increases in U.S. interest rates, which can lift the opportunity cost of holding non-interest-bearing gold.

Traders have priced in a 70-percent chance that the Fed will hike rates at a Dec. 13-14 meeting, up from 66 percent early Friday, according to CME Group's FedWatch tool.

Investors are also waiting for Wednesday's release of minutes of the latest Federal Reserve Open Market Committee meeting to see how close the central bank was to hiking rates last month.

Speaking to reporters after a speech in Sydney, Chicago Fed President Charles Evans said on Tuesday he "could be fine" with raising U.S. interest rates in December, but that he would prefer to see how the economy and inflation progressed before deciding.

Spot gold may revisit its Oct. 7 low of $1,241.20 per ounce, as its bounce from this level could have completed, according to Reuters technical analyst Wang Tao.

Among other precious metals, silver was steady at $17.62 an ounce.

Platinum was 0.1 percent lower at $959.25 an ounce and palladium was down 0.2 percent at $664.

(Reporting by Swati Verma in Bengaluru; Editing by Joseph Radford and Tom Hogue)