Gold falls to two-month low as dollar surge hurts appeal

© Reuters. FILE PHOTO: A machine engraves information on an ingot of 99.99 percent pure gold at the Krastsvetmet non-ferrous metals plant in the Siberian city of Krasnoyarsk, Russia March 10, 2022. REUTERS/Alexander Manzyuk

By Seher Dareen

(Reuters) - Gold prices slipped to a more than two-month trough on Wednesday as the dollar rallied on expectations of an aggressive monetary policy tightening by the U.S. Federal Reserve.

Spot gold slipped 0.8% to $1,889.84 per ounce by 10:34 am ET (1434 GMT). Prices earlier dropped to $1,881.45, its lowest level since Feb. 24.

U.S. gold futures were 0.8% lower at $1,888.70 per ounce.

"There's a flight to safety right now out of other currencies into U.S. dollar... Gold is going to struggle to rally between now and the Fed meeting," said Bob Haberkron, RJO Futures senior market strategist.

The dollar index charged to its highest level since January 2017, fuelled by expectations that the U.S. central bank will be more hawkish than peers and safe-haven flows fanned by concerns over slowing growth in China and Europe. [USD/]

The Fed is expected to increase rates by 50 basis points at its May 3-4 policy meeting. [FEDWATCH]

Rising U.S. interest rates increased the opportunity cost of holding non-yielding gold, while also boosting the dollar, in which it is priced. The greenback is also seen as a rival safe-haven asset to gold during economic and political crises.

"While the yellow metal's prices have remained extremely resilient against an aggressively hawkish Fed, as a protracted war in Ukraine simultaneously raised both geopolitical uncertainty and inflation risks and thereby fuelled demand for havens, we see few participants left with appetite to buy gold," analysts at TD Securities said in a note.

In other metals, spot silver dipped 0.3% to $23.42 per ounce, having earlier touched a low since Feb. 15.

Platinum eased 0.1% to $920.62 per ounce and palladium rose 0.9% to $2,206.39.