Dollar strength, looming rate hikes pin gold near 9-month low

July 11 (Reuters) – Gold was pinned near a nine-month low on Monday as bets for aggressive interest rate hikes by the US Federal Reserve and the dollar’s ascent dimmed appeal for bullion.

Spot gold fell 0.3% to USD 1,735.91 per ounce by 2:00 p.m. ET (1800 GMT). US gold futures settled down 0.6% at USD 1,731.70.

Despite recession risks, lately investors have opted for dollar over gold, pushing the currency to a near two-decade peak, also eroding appeal for bullion among overseas buyers.

Interest rate hikes, meanwhile, raise the opportunity cost of holding bullion since it pays no interest.

“Gold is under pressure as the dollar is making major runs and there is expectations of a fairly large interest increase after the (recent US) federal report highlighted a strong labour market,” Edward Moya, senior analyst with OANDA, said.

“Gold prices could tentatively breach below the USD 1,700 level and then see strong support around USD 1,670.”

US data on Friday showed labour market powered ahead with strong job gains, giving the Fed ammunition to deliver another 75-basis-point rate hike this month.

Meanwhile, Fed’s Esther George, a dissenter at the central bank’s 75 bps increase last month, said abrupt changes in rates “could create strains” in economy.

But growing pessimism over the state of some economies in Asia, and geopolitical instability to some extent, are limiting gold’s losses, as bullion remains the go-to safe haven during times of trouble, said Ricardo Evangelista, senior analyst at ActivTrades.

Spot silver fell 0.7% to USD 19.16 per ounce.

Despite the fall in silver prices, the retail cost of American Silver Eagle coins stayed high at around USD 35/ounce, a premium of about 80% on the spot price, which appears to be high enough to impact demand, Heraeus Precious Metals wrote in a note.

Platinum dropped 2.6% to USD 873.50 and palladium was down 1.3% at USD 2,154.99.

(Reporting by Ashitha Shivaprasad and Arundhati Sarkar in Bengaluru; Editing by Krishna Chandra Eluri and Shailesh Kuber)