Gold prices hit a five-week low on Wednesday as the dollar gathered strength on the prospect of a US interest rate hike. Investors are awaiting February non-farm payrolls data on Friday as a barometer of the US economy after Federal Reserve Chair Janet Yellen said last week the central bank was poised to lift rates provided jobs and inflation data held up. These comments were seen as cementing plans for an increase at the Fed's March 14-15 meeting.
Spot gold was down 0.57 percent to $1,208.41 per ounce at 1040 GMT, after touching its lowest since February 1 at $1,206.05, putting it on track for its fifth straight session in the red. "Non-farm payrolls ... will provide final confirmation of a rate hike next week and this could put more pressure on gold," Julius Baer commodities analyst Carsten Menke said.
Higher rates tend to put pressure on gold prices because they raise the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. Gold could dip below $1,200 before Friday's data, Menke said. The dollar index, which pits the greenback against six major currencies, inched up 0.2 percent.
On the other hand, ETF Securities' Martin Arnold said he expected the backdrop of political risk in France and a lack of policy certainty in the United States to create support for gold prices as the interest rate increase was already priced in. "And if the Fed doesn't follow up their tough talk with action then its certainly a bullish environment for gold," Arnold said, referring to expectations of three rate hikes this year.
In other precious metals, silver slipped 1.2 percent to $17.27 per ounce, after earlier touching $17.23, its lowest since February 3. Platinum fell 0.3 percent to $956.50 per ounce. The metal hit its lowest since January 19 at $946.50 on Wednesday. Palladium eased 0.2 percent to $769.85 per ounce.