Gold slides to four-month low as U.S. rate rise looms

By Jan Harvey

LONDON (Reuters) - Gold fell to a four-month low on Thursday after the U.S. Federal Reserve's reiteration that interest rates were likely to rise this year pushed the dollar index to a six-week high.

A European share rally after the Greek parliament passed the austerity measures demanded by lenders to open talks on a multi-billion euro bailout also diverted some attention from gold.[MKTS/GLOB]

Platinum hit its lowest since February 2009 at $1,000.75 an ounce, hurt by perceptions of plentiful supply. Top producer Anglo American Platinum said on Thursday its output rose 60 percent in the second quarter.

Palladium also slipped to its lowest since November 2012.

Spot gold fell 0.4 percent to $1,144.35 an ounce at 1132 GMT, while U.S. gold futures for August delivery were down $3.90 an ounce at $1,143.50.

Spot prices fell to their lowest since mid-March at $1,143.30 earlier after Federal Reserve Chair Janet Yellen confirmed on Wednesday the Fed will likely raise interest rates later this year if the U.S. economy expands as expected.

Gold is sensitive to rising interest rates, as they both increase the opportunity cost of holding non-yielding bullion and help the dollar.

"Yesterday's comments from Fed Chair Yellen, citing the likelihood of a 2015 rate rise, helped prop up the dollar and led to a slide in gold which retraced to its year-to-date lows," Mitsubishi analyst Jonathan Butler said.

"Gold is now trading below the long-term basing uptrend made up of the November and March lows, with further downside in prospect if the dollar gains further, or Treasury yields rise."

The Fed has indicated that the timing of a rate rise will depend on economic data. There was more evidence on Wednesday of improving growth, with industrial production rebounding last month and factory activity in New York state picking up in July.

The dollar hit a six-week high against a basket of currencies as fading concerns over Greece shifted the focus back to the outlook for yield differentials in different economies. [FRX/]

Premiums for physical gold on the Shanghai Gold Exchange picked up slightly to $2-$4 an ounce over the spot price, although analysts say a slowing economy could cap demand from China, the world's top gold consumer.

"While gold remains out of favour among investors, the potential return of Chinese buyers seeking an alternative to equities and real estate remains the key bullish wild card," Julius Baer said in a note. "However, the Shanghai Gold Exchange shows no pick-up in demand yet."

Among other precious metals, silver was down 0.7 percent at $14.99 an ounce and palladium was down 1.9 percent at $625.50 an ounce, off a low of $622.75.

(Additional reporting by Manolo Serapio Jr in Manila; editing by David Evans and David Clarke)