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Gold set for worst month in 2½ years on US rate hike view

[SINGAPORE] Gold extended losses on Monday, dropping towards its lowest level in nearly six years, and was poised to record its steepest monthly slide in 2½ years on prospects of a US interest rate hike this year.

The precious metal has fallen out of favour as investors position themselves for the first US rate hike in nearly a decade. The Federal Reserve is expected to raise rates at its next policy meeting on Dec 15-16.

Investors believe gold, as a non-interest-paying asset, will take a hit to demand from higher rates as the dollar gains.

Spot gold slipped 0.2 per cent to US$1,055.60 an ounce by 0656 GMT. It had dropped to US$1,052.70 earlier in the session, within striking distance of US$1,052.46, the lowest since February 2010, reached on Friday.

"With the charts looking increasingly dicey as we head into the Fed policy meeting, just as investment money continues to flee the complex, the odds are good that the US$1,000 level is the next stop for (gold) prices," said INTL FCStone analyst Edward Meir.

Bullion has lost about 7.5 per cent of its value in November, its biggest monthly dip since June 2013.

Investors are pulling money out of bullion funds, exacerbating the sell-off in gold.

Assets in SPDR Gold Trust, the world's top gold-backed exchange-traded fund, fell to their lowest since September 2008 on Friday.

The strength in the dollar also kept a lid on any increase in gold prices.

The dollar climbed to a fresh eight-month high against a basket of major currencies on Monday. A robust greenback makes dollar-denominated gold more expensive for holders of other currencies.

"Continued dollar strength will likely put further downwards pressure on the precious metals this week, potentially opening up the 2010 low of US$1,045," MKS Group trader Sam Laughlin said.

Among other precious metals, silver was poised to log its worst month in year, with a near-10 per cent drop.

The platinum group metals were the worst performers in the precious group in November. Palladium has lost 20 per cent for the month, while platinum has lost 16 per cent - both biggest monthly drops in four years.

For trading cues this week, bullion traders would be focused on the U.S. nonfarm payrolls report due on Friday. A strong jobs report could seal the case for a rate hike at the Fed's Dec. 15-16 meeting.

The European Central Bank (ECB) policy meeting on Thursday will also be eyed for impact on the currency markets. The ECB is widely expected to ease policy.