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Gold falls on hawkish views about possible next Fed chair

[NEW YORK] Gold prices fell to a one-week low on Tuesday on speculation that the eventual successor to US Federal Reserve Chair Janet Yellen will favour higher interest rates.

"It's partly (the possibility of a hawkish Fed chair) and that the Fed is going to hike rates this year that is contributing to a bullish dollar environment," Martin Arnold, commodities analyst at ETF Securities, said.

Spot gold was down 0.6 per cent at US$1,286.74 an ounce by 2.16pm EDT (1816 GMT), after dipping to US$1,281.31, while US gold futures for December delivery settled down US$16.80, or 1.3 per cent at US$1,286.20 per ounce, hitting a one-week low of US$1,283.20.

"Uncertainty about the next Fed chair being interpreted as being more hawkish encouraged more selling," said Ryan McKay, commodity strategist at TD Securities in Toronto.

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US President Donald Trump was favouring policy hawk John Taylor as the next head of the Fed, Bloomberg reported, pushing the US dollar higher and lifting US Treasury yields.

Mr Taylor, a Stanford economist, is seen as more likely to raise rates than Ms Yellen, which would boost the US dollar and dent gold and US Treasuries.

Meanwhile, the US Labor Department said on Tuesday import prices jumped 0.7 per cent last month, the biggest gain since June 2016, pushing inflation expectations higher and increasing the likelihood of monetary policy tightening.

The Fed will probably need to raise rates in December and then three or four times "over the course of next year", assuming US unemployment continues to fall and inflation rises, Boston Fed President Eric Rosengren said on Monday.

Gold generally loses some of its in appeal when interest rates are higher as it yields no interest.

Palladium, used mainly in auto catalytic converters, rose 0.9 per cent at US$981.25 per ounce, after hitting its highest since February 2001 in the previous session.

Analysts are wary about the price of palladium overheating in response to higher demand in the world's biggest auto market, China, and an expected supply deficit this year.

"While fundamentals in palladium are good, they are not supportive of the kind of gains we have seen this year," Mr Arnold said.

Raising political tensions, Iraqi government forces captured the Kurdish-held oil city of Kirkuk on Monday, responding to a Kurdish referendum on independence with force and transforming the balance of power in the oil-producing country.

Meanwhile, the United States is not ruling out the eventual possibility of direct talks with North Korea, Deputy Secretary of State John J Sullivan said on Tuesday, hours after Pyongyang warned nuclear war might break out at any moment.

Silver fell 0.8 per cent to US$17.04 an ounce, having touched a one-week low of US$16.92, while platinum was up 0.3 per cent at US$931.24 an ounce.

REUTERS