Gold slips on nervousness over Fed policy outlook

LONDON: Gold prices fell on Friday, reflecting tension between a global backdrop of easier interest rates and the chance of US monetary policy being tightened before the end of the year.

Spot gold slid 0.6 percent to $1,323.22 an ounce by 1416 GMT, on course for a weekly decline of about 1 percent.

Bullion has benefited significantly - hitting its highest in two years this month - as central banks from Europe to Japan keep policy looser for longer, which neutralises the opportunity cost of holding an asset that does not pay interest.

But the dollar has gained on strong US data, boosting bets the Fed will raise US rates by year-end. Friday's US manufacturing PMI numbers reflected the trend - the employment index hit the highest since July last year.

Sterling further felt the pinch of Britain's vote to leave the European Union, with surveys suggesting the UK economy may start to contract in quarterly terms.

"People think the international situation is enough to keep the Federal Reserve on hold, but there's some slight nervousness," Macquarie analyst Matthew Turner said.

"The assumption that the Fed is more cautious now is surely correct as it didn't manage to do the hiking cycle it wanted, but being more cautious does not mean completely paralysed. There's a slight down cycle for gold at the moment as there has been a string of good US data."

The US Federal Reserve will wait until the fourth quarter before raising interest rates, probably in December after the presidential election, according to a Reuters poll.

The European Central Bank, meanwhile, held rates at record lows on Thursday as it seeks to revive growth and inflation with cheap credit to the economy. It left the door open to more policy stimulus, highlighting great uncertainty and abundant risks to the economic outlook.

BNP Paribas revised up its gold forecasts for 2016 and 2017, but said it retained a "negative bias" in terms of trend on expectations that the Fed would normalise rates with the dollar remaining firm.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.22 percent to 963.14 tonnes on Thursday.

Palladium was up 0.2 percent at $684, having touched its highest since late October 2015 the previous day.

Silver, which fell to its lowest in nearly two weeks on Thursday, was down a third of a percentage point at $19.69 an ounce while platinum lost 0.8 percent to $1,093.