LONDON (Reuters) - Gold fell nearly 1 percent to its lowest in almost four weeks on Thursday, shrugging off further weakness in the dollar, after the Federal Reserve signalled it was on track to raise U.S. interest rates again in December.
The metal is highly sensitive to rising U.S. rates, which boost the cost of holding non-yielding bullion relative to other assets, while lifting the dollar, in which it is priced.
Spot gold was down 0.7 percent at $1,291.95 an ounce at 1355 GMT, having earlier touched its lowest since late August at $1,287.61. U.S. gold futures for December delivery were down $21.50 an ounce at $1,294.90.
“It should be an interesting time in the run up to mid-December as we see the Fed prepare to raise rates, reduce the balance sheet at the same time as a tense negotiation over the (U.S.) debt ceiling, plus fiscal spending plans and tax cuts are debated in Congress,” Mitsubishi analyst Jonathan Butler said.
Volatile conditions could help gold after its correction, he said.
In a statement following its latest two-day policy meeting, the U.S. central bank indicated it still expected one more increase by the end of the year in spite of a recent run of soft inflation readings.
It also said it planned to trim the $4.2 trillion in asset holdings that it had built up in the wake of the 2008 financial crisis.
Gold has pulled back more than $60 an ounce since hitting its highest in more than a year earlier this month at $1,357.54.
“The opportunity cost of holding gold seems to be going up now, and that’s bad news for gold,” LBBW’s head of commodity research Frank Schallenberger said. “We went up to $1,350 so quickly, and now we have consolidation. With the wording from the Fed, that could go on for a while.”
“We will head down to $1,250 in the next couple of weeks, and then we’ll think again (once) people have digested the news on interest rates,” he said.
The dollar hit a two-month high versus the yen after the Fed decision, but later fell against the euro after European Central Bank President Mario Draghi said monetary policy was not the right instrument to address financial imbalances in the euro zone.
Silver was down 1.1 percent at $16.94 an ounce, after falling to its lowest since Aug. 25 earlier in the session at $16.89.
Platinum was 0.5 percent lower at $936.10 an ounce, after touching a near eight-week low of $925 earlier in the day, while palladium was up 0.5 pct to $914.60 an ounce.
Additional reporting by Apeksha Nair in Bengaluru; Editing by Mark Potter and Jane Merriman