* Dollar at 14-yr peak after Fed ups 2017 rate hike outlook
* U.S. Treasury yields surge, hurting non-yielding gold
* GRAPHIC-2016 asset returns: reut.rs/1WAiOSC
(Updates throughout, adds LONDON dateline)
By Jan Harvey
LONDON, Dec 15 Gold hit its lowest since early
February on Thursday after the Federal Reserve sounded an
unexpectedly hawkish note on U.S. interest rates, sparking a
surge in Treasury yields and sending the dollar to a 14-year
Lifting the federal funds rate to a 0.50-0.75 percent range
on Wednesday, the U.S. central bank flagged a faster pace of
hikes next year as it geared up for the incoming Trump
administration's pledges to cut taxes and boost spending.
That sparked a rally in the dollar, pressuring assets priced
in the currency, while U.S. Treasury yields soared, lifting the
opportunity cost of holding non-yielding gold.
Spot gold hit a 10-1/2 month low of $1,132.15 an
ounce, and was down 1 percent at $1,132.70 an ounce by 1030 GMT.
U.S. gold futures for February delivery were $30.30, or
2.6 percent, lower at $1,133.40.
"The rate hike was pretty much priced in, so what gold is
really reacting to is the anticipation of three rate hikes next
year instead of two," UBS analyst Joni Teves said.
"The pressure on gold is understandable if you look at
yields, if you look at the dollar. As long as yields are high,
gold is going to struggle."
The metal had already fallen sharply in the run-up to the
Fed meeting after Republican candidate Donald Trump's election
to the U.S. presidency sparked a rally in the dollar and a rise
in assets seen as higher risk, like stocks, at gold's expense.
The metal saw its biggest monthly drop since mid-2013 in
November, and is down 10 percent since the election.
Holdings of the world's largest gold-backed exchange-traded
fund, SPDR Gold Shares, are down about 10 percent from
mid-November. Holdings fell again on Wednesday, by 6.8 tonnes.
"The sell-off in ETFs is the result of lack of investor
appetite in the gold markets," ANZ analyst Daniel Hynes said.
"The weak physical markets in China and India are not really
Indian demand has suffered from a cash crunch in recent
weeks after officials suspended the use of some bank notes,
while Chinese traders say the People's Bank of China has limited
imports into the world's biggest gold market.
Meanwhile, silver was down 2.2 percent at $16.46 an
ounce and platinum was 0.7 percent lower at $917.40.
Palladium, bucking the trend among the major precious
metals, was up 0.5 percent at $723.50. The white metal is mainly
used in autocatalysts, and tends to be more broadly correlated
to other cyclical assets than gold, silver and platinum.
(Additional reporting by Swati Verma and Nallur Sethuraman in
Bengaluru, editing by David Evans)