Gold hits seven week low as rate hike expectations rise

    * Strong U.S. data raises dollar, U.S. yields

    * World stocks hit record high

    * ETF holdings fall by most since July

    LONDON, Oct 3 (Reuters) – Gold touched its lowest price

level in seven weeks on Tuesday after strong U.S. economic data

reinforced expectations of another interest rate rise in the

United States this year and pushed the dollar and U.S. bond

yields higher.                       

    The CME’s Fedwatch indicator showed markets were pricing in

a 77 percent likelihood of a December rate rise after Monday’s

data showed a surge in U.S. manufacturing activity.          

    U.S. and world stocks also rose to new records as a positive

global growth outlook encouraged investment in riskier assets.             

    A strong dollar makes gold more expensive for holders of

other currencies, while higher bond yields reduce the appeal of

non-yielding gold.

    Spot gold was up 0.1 percent at $1,272.05 an ounce at

1430 GMT after the dollar and U.S. bond yields weakened from

earlier highs. But the gold price earlier touched $1,267.76, its

lowest level since Aug. 15 and down more than 6 percent from a

one-year high of $1,357.54 in early September.

    U.S. gold futures for December delivery were 0.1

percent lower at $1,274.50 an ounce.

    “The factors that pushed gold towards $1,360 in early

September are now reversing,” Julius Baer analyst Carsten Menke

said.

    “The U.S. dollar and yields have rebounded from their recent

lows and it looks like positioning in the gold futures market is

somewhat reversing, with some long covering and new shorts.”

    The net long position of hedge funds and money managers in

COMEX gold rose nine-fold in the two months to mid-September,

helping push prices higher, but has since fallen sharply.                          

    Menke said he expected a strengthening dollar and

normalisation of speculative positioning to push gold to $1,200

an ounce by the end of the year.

    Prices have also been supported by purchases of physical

gold by bullion-backed exchange-traded funds. But ETF holdings

tracked by Reuters dropped between Friday and Monday by the most

since late July.            

    On the technical side, gold was holding around its 100-day

moving average at $1,272.

    “This figure will be the key today in restricting any

further declines,” MKS PAMP trader Sam Laughlin said in a note.

“Should gold continue to trade lower, the next target will be

the 200-day moving average and key psychological level

around$1,250.”

    Meanwhile silver was up 0.4 percent at $16.61 an

ounce but still near its lowest level since Aug. 9.    

    Platinum was 0.3 percent higher at $913.30 and

palladium was down 0.1 percent at $908.70 an ounce,

slipping below platinum after reaching price parity for the

first time in 16 years last week.