September 30, 2014 / 6:43 AM / 5 years ago

Gold poised for worst month in fifteen on dollar strength

SINGAPORE (Reuters) - Gold held steady above a nine-month low on Tuesday as Asian equities remained unsettled by political unrest in Hong Kong, but was poised to post its sharpest monthly loss since June 2013 as a rapid climb in the dollar dimmed its appeal.

Gold bars are stacked at a safe deposit room of the ProAurum gold house in Munich March 6, 2014. REUTERS/Michael Dalder/Files

The precious metal is down about 5.5 percent for the month after hitting a nine-month low of $1,206.85 last week. Gold is also on track to post its first quarterly loss of the year, though it is still up about 1 percent for the year.

“The pressure is definitely on for gold to end the year in the red,” said Howie Lee, investment analyst at Phillip Futures.

“We see little in the way to stop gold’s downward slide, given that the Fed has made clear its intention to hike (rates) sooner than later and the Ukraine tensions have reached a fragile ceasefire,” Lee said, adding that a strong dollar will also weigh.

The U.S. Federal Reserve indicated earlier this month that it could raise borrowing costs faster than expected when it starts moving, which could boost the dollar and hurt non-interest-bearing bullion.

Spot gold edged up $1 to $1,216.71 an ounce by 0627 GMT, after dipping in the last two sessions.

Silver was set for a third monthly loss in a row, while platinum was headed for its worst monthly decline since June 2013 with a drop of about 8 percent.

Palladium was the biggest loser in the group with a 12 percent loss - its worst month in three years.

The dollar climbed to a four-year peak against a basket of major currencies in September, helped by strong U.S. economic data and the Fed’s outlook on higher interest rates. It is on track to post its biggest monthly gain in well over a year.

A stronger greenback makes the dollar-denominated precious metals more expensive for holders of other currencies. Investors tend to withdraw from commodities and emerging market assets to seek higher yields in U.S. assets when the dollar gains.

Investors were also watching political unrest in Hong Kong for any worsening of tensions as that could lead to safe-haven bids for gold. Equities have already taken a hit from the protests.

Tens of thousands of pro-democracy protesters blocked Hong Kong streets on Tuesday, maintaining pressure on China as it faces one of its biggest political challenges since the Tiananmen Square crackdown 25 years ago.

Some Hong Kong dealers were worried that retail sales of jewellery could take a hit, especially during the one-week National Day holiday that begins on Wednesday.

The holiday is usually a busy period that retailers rely on for a boost to their sales due to the influx of tourists from China.

“Some jewellery shops have been closed completely or some are closing early due to the protests,” said a dealer in Hong Kong. “It does look like there will be a small impact on sales if the protests continue for long.”

Editing by Edwina Gibbs, Muralikumar Anantharaman and Sunil Nair

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