Gold hits 3-1/2-month low on Fed hike fears, set for monthly loss

By Sherin Sans

Oct 30 (Reuters) - Gold prices fell to their lowest since mid-July on Friday and were headed for a second straight monthly decline, as rising crude oil prices and persistent inflation worries reinforced expectations of further US interest rate hikes.

Spot gold was down 0.6% at $3,995.42 per ounce, as of 0904 GMT, after hitting its lowest since July 17 earlier. US gold futures for December delivery dropped 0.6% to $4,005.50. Bullion has declined 3.8% so far this month.

"Gold prices are affected by a combination of two factors, the US GDP data which came in stronger than expected and the increase in oil prices putting pressure on the Fed to hike further interest rates," said Giovanni Staunovo, a UBS analyst.

Data on Thursday showed US gross domestic product grew more than expected last quarter, while inflation accelerated in September as consumers paid more for gasoline and other goods, bolstering economists' expectations of a rate hike in December.

Traders are pricing in a near 74% chance of a rate hike in December, according to the CME's FedWatch Tool

"Gold could climb to $5,000 or higher next year, as the Fed will eventually have to cut rates again and inflation will no longer pose a problem," Staunovo said.

Major central banks hit pause on rate rises this week but made clear the tightening cycle isn't over, with the Fed and the European Central Bank both holding rates steady and pointing to inflation risks from surging energy costs.

Oil prices climbed and were set for a fourth monthly gain as an attack on a tanker in the Strait of Hormuz highlighted continuing supply risks from the US-Israeli war on Iran.O/R

Higher energy prices strengthen expectations of a prolonged period of elevated interest rates, making non-yielding assets such as gold less attractive.

Spot silver slid 2.8% to $50.9221, platinum dropped 3.1% to $1,441.72 and palladium fell 2.1% to $984.50. All three metals were poised for weekly and monthly declines.