Gold falls to near 5-1/2-year low as dollar rises on Sept Fed hike view

[MANILA] Gold fell more than 1 per cent to near its weakest level since early 2010 on Thursday, as the dollar jumped ahead of US economic data that is likely to strengthen expectations for an interest rate hike by the Federal Reserve in September.

After a two-day meeting, US policymakers said they felt the economy had overcome a first-quarter slowdown and was "expanding moderately". A Reuters poll showed the US economy may have rebounded in the second quarter.

That buoyed the greenback, making dollar-priced gold more costly for buyers using other currencies.

Spot gold dropped 1 percent to US$1,084.46 an ounce by 0659 GMT, after hitting a low of US$1,081.85.

Bullion sank to US$1,077 last week, its cheapest since February 2010, after a selloff in New York and Shanghai and has since struggled to recover above US$1,100. "We still do think the bearish pressure on gold prices is strong. We don't expect to see any substantial recovery," said Howie Lee, analyst at Phillip Futures in Singapore.

Whether a US rate hike - which would be the first since 2006 - came in September or December was immaterial, said Lee who sees the next major support at US$1,000. "The slide that we've seen last week showed investors were already pricing in the effect of the first rate hike whether it's September or December. What matters is after the first rate hike, how would they conduct the rest of the rate increases." US gold for August delivery slipped 0.8 per cent to US$1,084 an ounce.

US economic growth likely accelerated at an annual rate of 2.6 per cent in April-June after shrinking in the first quarter, according to a Reuters poll of economists.

First-quarter gross domestic product, previously reported to have contracted by 0.2 per cent, could also be revised higher after the government took steps to refine the seasonal adjustment for some components of GDP.

A substantially higher growth number would strengthen views for a September rate hike, Mizuho Bank said in a note. "We think that the Fed will adopt a gradual pace of tightening, we expect only one rate hike this year. And policy will continue to be conditioned on data," the bank said.

A looming increase in US interest rates had weighed on non-interest bearing gold, with some analysts predicting further falls before and after the actual rate hike.

Holdings of the largest gold-backed exchange-traded-fund, New York's SPDR Gold Trust, were unchanged at 21.87 million ounces for a second day on Tuesday. That level is the lowest since September 2008.

In other metals, spot platinum and palladium were steady and silver dropped 0.7 per cent.

REUTERS