Gold price drops on firmer dollar as rate hike looms

London (Mar 2) Gold prices slipped on Thursday as the dollar firmed on hawkish comments from US Federal Reserve officials that stoked expectations of a US interest rate hike in March.

Spot gold fell 0.4 percent to $1,244.72 per ounce by 3:15 pm Beijing time. On Monday, the precious metal rose to $1,263.80, its highest since November 11. US gold futures fell 0.3 percent to $1,246.60.

The dollar index, a measure of the greenback against a basket of six major currencies, was up 0.1 percent at 101.910. On Wednesday, it reached 101.97, the highest since January 11.

Higher US interest rates would diminish demand for non-interest bearing gold while a higher dollar makes the yellow metal more expensive for buyers using other currencies.

"Much of the recent strength we are seeing in the dollar is more attributable to an abrupt about-face in terms of what the markets are expecting from the Federal Reserve's March meeting," said INTL FCStone analyst Edward Meir.

Despite the hawkish rate backdrop, gold has been performing impressively considering that the US equity markets also surged to new highs, Meir noted.

The Dow Jones Industrial Average blasted through the 21,000-point mark for the first time. Both the Dow and the S&P 500 rallied around 1.4 percent.

US consumer spending cooled in January as demand for automobiles and utilities fell, but inflation recorded its biggest monthly increase in four years, another reason for the Fed to hike rates.

Fed Governor Lael Brained on Wednesday said that it may be "appropriate soon" to raise interest rates as the economy seems to have turned a corner.

More Fed officials will speak on Friday, likely providing further signals on the policy path ahead of their March meeting.

Source: TheGlobalTimes