Gold under pressure as dollar gains on U.S. rate hike hopes

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold struggled on Wednesday to recover from its losses over the previous two sessions, as the dollar hit its highest in nearly three weeks on expectations the Federal Reserve would hike U.S. interest rates this year.

Spot gold was little changed at $1,124.30 an ounce by 0330 GMT, after dropping 1.3 percent over the past two days.

The metal's slide follows a rally last week that took it to a near three-week high after the Fed's move to stand pat on interest rates. However, the U.S. central bank has also said it would move to increase rates later this year for the first time in nearly a decade.

Higher rates would dent demand for non-interest-paying gold, while boosting the dollar. A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

"Persistent dollar strength will hamper the precious complex, whilst the timing of the first Fed interest rate rise will also add to the uncertainty and continued volatility," said MKS Group trader James Gardiner.

The Fed will likely hike interest rates in December, according to economists polled by Reuters who assigned a 60 percent probability of it happening. This has buoyed the dollar, which on Wednesday hit 96.484 against a basket of currencies, its strongest level since Sept. 4.

Gold failed to see a safe-haven boost from a dip in equities. Asian stocks fell on Wednesday as fears of an entrenched global economic slowdown gripped investors, underlined by a weak factory survey from China.

A private survey on Wednesday showed activity in China's factory sector unexpectedly shrank to a 6-1/2-year low in September, raising fears of a sharper slowdown in the world's second-largest economy.

Among other precious metals, platinum fell to a fresh 6-1/2-year low of $925.30 an ounce on Wednesday, extending losses to a fourth straight session.

Some traders said the metal could be affected by news of Volkswagen AG's falsification of U.S. vehicle emission tests that could affect 11 million of its cars worldwide. Platinum is used in diesel catalysts.

Silver ticked up to $14.74 but largely held on to a 3 percent drop overnight.

(Reporting by A. Ananthalakshmi; Editing by Himani Sarkar)