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NEW YORK/LONDON (Reuters) - Gold prices extended losses to a five-week low on Wednesday as the dollar gathered strength on the prospect of a U.S. interest rate hike.
Investors are awaiting February non-farm payrolls data on Friday as a barometer of the U.S. economy after Federal Reserve Chair Janet Yellen said last week the central bank was poised to lift rates provided jobs and inflation data held up.
These comments were seen as cementing plans for an increase at the Fed's March 14-15 meeting. [FED/DIARY]
Spot gold XAU= was down 0.5 percent at $1,209.49 an ounce by 2:59 p.m. EST (1959 GMT), after touching its lowest since Feb. 1 at $1,206.05, putting it on track for its fifth straight session in the red.
The most active U.S. gold GCcv1 futures for April delivery settled down 0.6 percent at $1,209.40.
"Non-farm payrolls ... will provide final confirmation of a rate hike next week and this could put more pressure on gold," Julius Baer commodities analyst Carsten Menke said
Higher rates tend to put pressure on gold prices because they raise the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
The dollar index .DXY, which pits the greenback against six major currencies, rose 0.3 percent.
"Despite the recent selloff we think that gold prices have been very resilient, given the circumstances," said Georgette Boele, precious metals analyst for ABN Amro, pointing to the rise in two-year-U.S. Treasury yields and strong U.S. equity markets.
The ADP National Employment Report showed its biggest increase in more than a year in February, suggesting the U.S. economy remains on solid ground.
"It puts upward pressure on both the consensus and our forecast for payrolls on Friday," said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto.
On the other hand, ETF Securities' Martin Arnold said he expected the backdrop of political risk in France and a lack of policy certainty in the United States to create support for gold prices as the interest rate increase was already priced in.
"And if the Fed doesn't follow up their tough talk with action then its certainly a bullish environment for gold," Arnold said, referring to expectations of three rate hikes this year.
In other precious metals, silver XAG= slipped 1.3 percent to $17.26 per ounce, after tapping its lowest since Jan. 31 at $17.19
Platinum XPT= fell 1.4 percent to $946.45 per ounce, after falling to $941.50, the lowest since Jan. 5.
Palladium XPD= eased 0.8 percent to $766 per ounce.
Additional reporting by Arpan Varghese in Bengaluru; editing by Mark Potter and Marguerita Choy