Gold slips on firmer dollar and hazy Fed rate outlook

By Eric Onstad

LONDON (Reuters) - Gold edged lower on Tuesday weighed down by a firmer dollar and uncertainty about whether the U.S. central bank will raise interest rates next week, while the potential for more stock market weakness offered support.

A member of the U.S. Federal Reserve's rate setting committee (FOMC) said on Monday the case for tightening monetary policy was "less compelling", leading traders to trim the odds of a September rate rise to 15 percent from 24 percent on Friday, according to CME Group.

"We're treading water today after the bounce we received from the FOMC comments yesterday, but gathering from the limited impact we've seen, the market is still probably concerned about the potential for a rate hike later this month," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

Spot gold was down 0.3 percent at $1,323.53 an ounce at 1255 GMT. U.S. gold futures rose 0.1 percent to $1,327.40 an ounce.

"We remain range-bound from $1,300 to $1,350, and the key today is to keep an eye on the stock markets. If they show more of a corrective mode, we may find some additional support from that," Hansen said.

European shares were little changed, ending a three-day losing streak following the Fed official's comments while a slightly stronger dollar index, recovering from losses the previous day, put pressure on bullion.

Spot gold may run out of steam around resistance at $1,330 per ounce before resuming its downward trend, according to Reuters technical analyst Wang Tao.

"As the market reduces the likelihood of a near-term rate rise and if oil losses stabilise, gold prices should find a bottom, at least in the run up to the FOMC," HSBC analyst James Steel said in a note.

Oil fell on Tuesday following a series of gloomy predictions about demand growth that suggested the global overhang of unused inventories may persist for much longer than investors had anticipated. [O/R]

Platinum dropped 1.1 percent to $1,041.75. It touched its lowest in more than two months at $1,033.45 on Monday.

"The weak rand may also prompt South African investors to further reduce their platinum and palladium ETF (exchange-traded fund) holdings," Commerzbank said in a note.

"Despite good long-term prospects, we believe that the downward pull on the platinum group metals will continue in the short term."

Palladium shed 1 percent to touch $654.20. It hit a low of $650.15 Monday, a level not seen since July 20.

Spot silver declined 0.4 percent to $18.97 an ounce, after hitting a more than one-week low of $18.69 in the previous session.

(Additional reporting by Nallur Sethuraman and Swati Verma in Bengaluru; editing by Mark Potter and David Clarke)