Gold drops 1% on hawkish Fed comments ahead of US inflation data

By Sherin Sans

Nov 10 (Reuters) - Gold prices fell more than 1% on Tuesday after hawkish remarks from a US Federal Reserve official, who said aggressive monetary policy may be needed if inflation continues to rise, weighed on bullion ahead of the release of US consumer price data.

Spot gold was down 1.5% to $4,078.53 per ounce by 1025 GMT. US gold futures for December delivery fell 0.7% to $4,086.30 per ounce.

"There is a bitter turnaround on the rate and dollar side. Rates are not falling anymore as before," said UBS analyst Giovanni Staunovo. USD/ US/

The dollar steadied on Tuesday following a bumpy few days, helped by hawkish remarks from Federal Reserve Governor Christopher Waller, with US inflation data due that could lift the currency further if rate hike bets strengthen.

Short-dated Treasury yields jumped in London trade on Tuesday after Waller's comments. US/

The Federal Reserve ought to raise short-term borrowing costs next month even if government data shows inflation cooled last month, Waller said on Tuesday, and should consider an upsized half-point rate hike if the inflation picture worsens.

Traders currently see about a 99% probability that the Fed will raise rates in December after the comment, according to CME's FedWatch tool.

Although gold is typically seen as an inflation hedge, higher interest rates tend to reduce the appeal of non-yielding bullion.

Market focus now turns to US consumer price data at 1330 GMT later today and producer price figures due on Friday, which could shape expectations for the Fed's next move.

Core CPI, which excludes volatile food and energy prices, likely increased a moderate 0.2% last month from September, economists polled by Reuters say.

"If we get something hotter than 0.3%, that could once again add some of that pressure on rate hike fears. So that could be gold negative, a number below or at 0.3% will remain supportive for gold," said Nitesh Shah, commodity strategist at WisdomTree.

Among other metals, spot silver slipped 1.9% to $52.42, platinum fell 1.1% to $1,560.08 and palladium dropped 0.51% to $1,036.24.