Gold drops to over 2-month low on lofty dollar, imminent US rate hike

Gold drops to over 2-month low on lofty dollar, imminent US rate hike

Gold prices fell to a 10-week low on Thursday, as an elevated U.S. dollar hurt demand for greenback-priced bullion, while an impending Federal Reserve interest rate hike also dented the metal's appeal as an inflation hedge.

Spot gold was down 0.1% at $1,885.06 per ounce, as of 0805 GMT, and hit its lowest since Feb. 17 earlier in the session. U.S. gold futures slipped 0.1% to $1,885.90. Gold has been holding very well above $1,900, but has seen pressure from the dollar, and the underlying factor of the U.S. Federal Reserve being expected to raise interest rates by 50 basis points next week, said Brian Lan, managing director at dealer GoldSilver Central.

The dollar index is at five-year highs and a further push above 103.82 would send it to levels not visited since late-2002. A stronger dollar makes greenback-priced gold less attractive for other currency holders. Benchmark 10-year U.S. Treasury yields also firmed as investors awaited further clarity on the "restrictive" policy the Fed plans to pursue next week to combat inflation by curbing economic growth. Gold is highly sensitive to rising U.S. short-term interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion.

However, gold is also seen