Gold up as dollar falls, but close to 2-week low on Dec rate hike talk

By Clara Denina

LONDON (Reuters) - Gold rose on Thursday as the dollar retreated, but remained close to its lowest level in two weeks after the Federal Reserve hinted at a possible U.S. rate hike in December.

Spot gold rose 0.4 percent to $1,160.16 an ounce by 1050 GMT, following a 1 percent slide in the previous session, when the metal fell to $1,152, its lowest since Oct. 13.

U.S. gold futures slid 1.3 percent to $1,161 an ounce.

"The Fed wording is more positive than it was and the probabilities of (a rate hike) taking place have increased but still have to go through the November data set," Natixis analyst Bernard Dahdah said.

"I see gold ranging between $1,160 and $1,180 in the next couple of months."

The Fed kept interest rates unchanged on Wednesday, as expected, but in a direct reference to its next policy meeting put a December rate hike firmly in play.

The U.S. central bank said raising rates at its next meeting would depend on progress made on employment and inflation, and omitted any reference to global developments affecting economic activity.

In recent weeks, investors had bet the Fed would delay its first rate hike in nearly a decade until next year, due to weakness in the global economy and its impact on the United States. The divergent monetary policies of China, Japan and the euro zone, still on the monetary expansion path, were also seen as a possible concern for U.S. policy makers.

But the surprisingly hawkish tone of Fed chair Janet Yellen sent the dollar soaring against a basket of major currencies to its highest level in more than two months.

Rate futures traders boosted bets that the Fed would raise rates at its next meeting on Dec 15-16.

Investors will now be closely monitoring U.S. data, including gross domestic product due later in the session, to gauge the strength of the economy and how it could affect Fed policy.

U.S. third-quarter economic growth could surprise on the upside after government data on Wednesday showed the goods trade deficit narrowed sharply to a seven-month low in September.

"If the (GDP) number is stronger than expected, it could reinforce the dollar rally and exert further pressure on gold," INTL FCStone said in a note.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.17 percent to 694.34 tonnes on Wednesday.

Industrial metals fell on Thursday, with platinum down 0.3 percent at $992.05 an ounce and palladium falling 1 percent to $670.75 an ounce. Silver followed gold's climb, rising 0.1 percent to $15.94 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Mark Potter)