Gold dropped on Tuesday as the dollar strengthened after China devalued its currency to prop up its economy, adding to the downward pressure on bullion from a looming increase in US interest rates. Beijing allowed the yuan to fall to its lowest level in nearly three years after a run of poor economic data, with the central bank describing the move as a "one-off depreciation" of nearly 2 percent.
"No one saw this coming and I think gold might suffer a fresh round of downward pressure from here," said Howie Lee, an analyst at Phillip Futures in Singapore. Gold was down 0.3 percent at $1,100.70 an ounce by 0616 GMT, but off an early low of $1,093.25. Bullion rose as high as $1,108.80 overnight, its loftiest since July 21. Bullion climbed nearly 1 percent on Monday, its biggest gain since June 18, as the dollar retreated from its highest level since April against a basket of currencies on the view that Friday's lower-than-forecast US nonfarm payrolls in July meant US rates might not rise next month.
But Lee believed there was still a "60-40" chance of the Fed raising rates in September. "Overall it felt like a good jobs report because there were upward revisions to May and June and higher wage earnings," he said. US gold for December delivery dropped 0.3 percent to $1,101 an ounce.
Atlanta Fed President Dennis Lockhart said on Monday that a decision to raise rates should come soon. He said he was "very disposed" to a rate increase at the September policy meeting, but stressed that subsequent increases should be gradual. Gold has been hit by expectations that the Fed would lift rates this year for the first time since 2006. Investors have cut their exposure to non-interest-bearing bullion and raised their bets on the dollar. The metal has struggled to recover above $1,100 since breaching that key support level in a July 20 rout that pushed bullion down to $1,077 on July 24, its cheapest since 2010. Spot platinum fell 0.5 percent to $979.24 an ounce and palladium dropped 1.1 percent to $601.05, with both metals near multi-year lows. Silver eased 0.3 percent to $15.17 an ounce.