NEW YORK: Gold prices fell below the key $1,700 level on Thursday for the first time since July, as a rising dollar and expectations for aggressive interest rate hikes eroded its appeal.

Spot gold fell 0.8% to $1,696.81 per ounce by 12:08 p.m. ET (1608 GMT), having dropped to its lowest since July 21 earlier in the session.

US gold futures dipped 1.2% to $1,706.10.

Gold is considered a safe store of value during times of economic uncertainty, but a higher rate environment tends to take the shine off the asset as it does not pay any interest.

“If the Fed sticks to its inflation mandate and keeps rates elevated and refrains from cutting rates even in a recession, it will not bode well for gold,” said Daniel Ghali, commodity strategist at TD Securities.

“If gold breaks below the $1,675 range, we expect substantial selling pressure to emerge.”

Mirroring investors’ sentiment, holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 31,294,673 ounces on Wednesday, the lowest since January.

The dollar index surged to its highest in 20 years, after data showing growth in US manufacturing in August and a dip in Americans filing new claims for unemployment benefits last week gave the Federal Reserve more room to aggressively raise interest rates.

A higher dollar makes bullion more expensive for overseas buyers. US Treasury yields also advanced, increasing the opportunity cost of holding non-yielding bullion.

Spot silver fell 1% to $17.78, after hitting its lowest level in more than two years.