July 16, 2014 / 6:49 AM / 6 years ago

PRECIOUS-Gold below $1,300 on stronger dollar, interest rate fears

* Gold steady after 3.3 percent drop in two days
    * Physical demand fails to pick up strongly
    * Further weakness in prices likely - analysts

 (Updates prices)
    By A. Ananthalakshmi
    SINGAPORE, July 16 (Reuters) - Gold steadied after two days
of losses on Wednesday but held below $1,300 an ounce, near a
four-week low, on a stronger dollar and fears that the Federal
Reserve could hike U.S. interest rates sooner than expected. 
    Fed Chair Janet Yellen said on Tuesday the U.S. central bank
could raise rates earlier or faster if hiring and wages take off
in an unexpected way, though she signalled that the Fed will
keep monetary policy loose until jobs data shows the effects of
the financial crisis are "completely gone".    
    Spot gold had gained 0.3 percent to $1,297.94 an
ounce by 0629 GMT, after losing 3.3 percent in the last two
sessions - the metal's biggest two-day loss since October.  
    Traders said gold could have further to fall, especially as
this week's $40 drop has failed to generate a robust pick-up in 
physical demand in Asia.
    "I don't see any new positions created at this level or any
fresh buying in the physical markets," said Peter Fung, head of
dealing at Wing Fung Precious Metals in Hong Kong.
    "Prices will see some range-trading now and could
consolidate at $1,280-90."
    Fung said prices in Hong Kong were either on par with the
global benchmark, or slightly lower, due to weak demand.
    In China, the top consumer of gold, local premiums edged up
to $1 an ounce on the Shanghai Gold Exchange from a small
discount in the previous session. 
    The bigger concern in the market is still about U.S.
interest rates, with a hike likely to encourage investors to
withdraw money from non-interest-bearing assets such as gold. 
    Recent economic data from the United States, including that
on jobs, has indicated that the economy is on a strong footing. 
    A strengthening U.S. economy and job market means the Fed
should begin raising interest rates "relatively soon," Kansas
City Federal Reserve Bank President Esther George said on
    George said by many measures, including a recent rise in
rent and food prices, and strong hiring reports, the Fed should
have already lifted interest rates from the zero level.
    "Despite Yellen defending the Fed's stance to maintain loose
monetary policies, the bullion markets seemed to interpret her
comments for the possibility of an earlier than an anticipated
rate hike as gold-bearish," HSBC analysts said in a note.
    "With the break below $1,300/oz and technical weakness,
further losses for gold are likely."
    PRICES AT 0629 GMT    
 Metal            Last      Change   Pct chg
 Spot gold         1297.94     3.84      0.3
 Spot silver         20.73     0.08     0.39
 Spot platinum      1481.1     4.85     0.33
 Spot palladium     865.85     2.85     0.33
 Comex gold         1298.7      1.6     0.12
 Comex silver       20.795   -0.094    -0.45
 Euro               1.3563                  
 DXY                80.412                  
 COMEX gold and silver contracts show the
 most active months
 (Editing by Richard Pullin and Anupama Dwivedi)
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