Gold hits 8-week low on robust dollar, steep rate-hike bets

Sept 15 (Reuters) – Gold prices fell to their lowest level in eight weeks on Thursday, weighed down by a stronger dollar and bets that the US Federal Reserve will deliver an aggressive rate hike to tame stubbornly high inflation.

Spot gold was down 0.4% at USD 1,688.49 per ounce, as of 0740 GMT, after touching its lowest since July 21 earlier in the session. US gold futures fell 0.6% to USD 1,698.10.

“The Fed needs to shock the economic system hard and the chance of a 100-basis-point rate rise is a very real possibility,” said Michael Langford, director at corporate advisory firm AirGuide.

The dollar index rose 0.2% and was not far from its two-decade peak scaled last week, as hotter-than-expected inflation data boosted bets for even more aggressive monetary policy tightening by the Fed.

Fed funds futures are pricing in a 37% chance that the US central bank will hike rates by 100 basis points at its policy meeting next week.

“A 100-basis-point rate rise will see gold break below USD 1,680/oz,” Langford said.

Gold is highly sensitive to rising US interest rates as they increase the opportunity cost of holding the non-yielding bullion while boosting the dollar.

Meanwhile, International Monetary Fund chief Kristalina Georgieva said on Wednesday central bankers must be persistent in fighting broad-based inflation.

“The outlook for gold is bearish … If you look at the biggest gold fund (SPDR Gold Trust), we have seen liquidation in ETFs,” said Jigar Trivedi, senior analyst currency and commodity analyst at Mumbai-based Reliance Securities.

“After USD 1,680, USD 1,620 is the next support in gold.”

Among other precious metals, spot silver dropped 1.3% to USD 19.44 per ounce, platinum fell 0.1% to USD 905.16 and palladium was down 0.8% at USD 2,141.30.

(Reporting by Eileen Soreng and Arundhati Sarkar in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)