August 22, 2016 / 7:01 PM / a year ago

PRECIOUS-Gold falls to two-week low on U.S. rate hike prospects

* Gold hits two-week low, silver lowest in 7 weeks
    * Speculators cut bullish bets on gold, silver
    * GRAPHIC-2016 asset returns:

 (Adds comments, updates prices, adds NEW YORK dateline)
    By Devika  Krishna Kumar and Jan Harvey
    NEW YORK/LONDON, Aug 22 (Reuters) - Gold prices slid on
Monday and hit a two-week low as upbeat comments from Federal
Reserve officials on the U.S. economy boosted expectations that
the central bank could lift interest rates sooner rather than
    The Fed's No.2 policymaker, Stanley Fischer, said on Sunday
the central bank is close to hitting targets for full employment
and 2 percent inflation. 
    That followed comments last week from New York Fed President
William Dudley that the labour market is improving, and from San
Francisco Fed chief John Williams that waiting too long to lift
rates could be costly for the economy. 
    Gold is highly sensitive to rising U.S. interest rates,
which boost the opportunity cost of holding non-yielding gold,
while lifting the dollar, in which it is priced.
    Spot gold was down 0.2 percent at $1,338.01 per ounce
by 2:38 p.m. ET (1838 GMT) after hitting a session low of
$1331.35, its lowest since Aug. 9. 
    The most active U.S. gold futures for December
delivery settled down $2.8, or 0.21 percent, at $1,343.4 per
    "We definitely think the U.S. recovery is on track.
Inflation is starting to pick up, employment is pretty much at
the natural rate, so everything is coming together to suggest
there's a very high probability of a rate hike before the end of
the year," Dan Smith, analyst at Oxford Economics, said. 
    "I don't think that's wholly priced in (to gold). It does
have the potential to have an impact," he said. "I don't see why
we can't go below $1,300 before the end of the year."
    Central bankers from around the world will gather from Aug.
25 for an annual meeting in the mountains of Jackson Hole,
Wyoming, with Chair Janet Yellen due to speak the following
    The dollar rose against the yen and euro on Monday as
traders reassessed expectations for Fed action on rates after
policymakers' comments last week. 
    Speculators cut their bullish positions in COMEX gold
contracts in the week to Aug. 16, but remains near the record
high touched early last month. 
    "Sizable long positions plus technical vulnerability, the
strength in the dollar and then the hawkish news - all of that
is working against gold," said Eli Tesfaye, senior market
strategist for brokerage RJO Futures in Chicago. 
    If prices fall below Monday's low, the market could see
further liquidation, Tesfaye said.
    The world's largest gold-backed exchange-traded fund, New
York-listed SPDR Gold Shares, reported an outflow of 4.5
tonnes last week, adding to the near 20-tonne drop in its
holdings the previous week. 
    Silver hit a seven-week low of $18.77 an ounce and
was later down 2.31 percent at $18.84.
    Platinum was down 1.19 percent at $1,097.25, after
falling to its lowest in nearly a month. Palladium was
2.82 percent lower at $688.

 (Additional reporting by Nallur Sethuraman in Bengaluru;
editing by Adrian Croft and Marguerita Choy)

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