Gold eases as dollar resumes rally in run up to Fed rate hike decision

By Kavya Guduru

(Reuters) - Gold gave up small gains in range-bound trading on Tuesday as the dollar resumed its climb and hit a 20-year high, eroding bullion's safe-haven appeal on investor bets of aggressive rate hikes by the U.S. Federal Reserve.

Spot gold fell 0.4% to $1,811.80 per ounce by 12:33 p.m. EDT (1633 GMT), while U.S. gold futures slipped 1% to $1,813.40.

"The main thing driving gold right now is anticipation of a very aggressive Fed when it comes to rates tomorrow, given the recent inflation data," said Bob Haberkorn, senior market strategist at RJO Futures.

The dollar edged higher against a basket of currencies to scale a fresh two-decade high, making gold expensive for overseas buyers. [USD/]

"Short term, this is still looking like a tough environment for gold, but it will eventually resume that safe-haven role. We just need to get beyond this strong dollar," said Edward Moya, senior analyst with OANDA.

Expectations for a 75 basis point hike at the Fed's two-day policy meeting jumped to 96%, according to CME's Fedwatch Tool. Such a hike would be the biggest since 1994, increasing the opportunity cost of holding non-yielding bullion. [FEDWATCH]

Other data showed the producer price index for final demand rose 0.8% in May after advancing 0.4% in April, the Labor Department said, in line with expectations.

"The successful or unsuccessful race to combat inflation before the economy begins to suffer has become a major theme and one that will determine the ultimate direction of gold," Saxo Bank analyst Ole Hansen wrote in a note.

Silver fell 0.7% to $20.91 per ounce, platinum shed 1.4% to $919.65, while palladium rose 0.7% to $1,809.73.

 

(Reporting by Kavya Guduru in Bengaluru; Editing by Anil D'Silva)