NEWS / Monetary Policy

Gold edges down nearly $2 as dollar advances

SYDNEY - Gold fell around $2 on Wednesday, compounding steep overnight losses, as the U.S. dollar extended its recent gains amid a growing belief that U.S. interest rates will rise again later this month.

Spot gold was quoted at low as $624.10 an ounce versus $626.00 in late New York trading, where the metal was down $17. At 0228 GMT, gold cost $624.25/$624.75 an ounce against the last London fix of $627.00 an ounce.

"The dollar is strongest influence on the gold market right now," a dealer said.

Gold was facing selling across Asia in response to more gains by the dollar against the euro, dealers said.A stronger dollar counters gold's traditional role as a hedge against a fall in the U.S. currency's value.

The greenback edged up against the euro on Wednesday, extending gains made after more Federal Reserve policy-makers warned of the risk of inflation, boosting chances U.S. interest rates will be hiked again later this month.

St. Louis Fed chief William Poole was quoted by the Wall Street Journal as saying that a slowing economy on its own may not reduce inflationary pressures.

Gold was likely to trade in a wider-than-usual range as long as speculation over U.S. interest rate policy persists, dealers said.

"Aside from speculative money, market nervousness has become a key feature, with day-to-day news flows causing the market to swing either way," Challenger Financial Services Group said in a metals markets report.

TheBullionDesk.com sees a longer-term mixed performance within a broad range of between $625.00 and $675.00 an ounce.

Gold has fallen out of favour in recent weeks after hitting a 26-year high of $730 on May 12 as funds and speculators sold to take profits.

Rising oil prices also contributed to gold's upswing, by suggesting inflation could become a concern.

But overnight oil was working against gold, dipping after Iran said world powers made positive proposals to end a crisis over its nuclear programme.

Spot silver dropped 9 cents from the late New York quote to $11.74/$11.84 an ounce.

Spot platinum was up $3 at $1,234/$1,241 an ounce.

Spot palladium was down $4 at $340/$347 an ounce.