* Fed expected to raise interest rates next week
* Metal hurt by broader decline in commodity prices
* Deflation worries would be bad for gold
(Updates prices)
By A. Ananthalakshmi
SINGAPORE, Dec 8 (Reuters) - Gold struggled to recover from
overnight losses on Tuesday on expectations of a Federal Reserve
rate hike next week and a robust dollar.
The metal was also hurt by a slide in commodity prices,
particularly crude oil which was near 7-year lows as OPEC
continues to pump near record oil to defend market share. O/R
Spot gold XAU= had ticked up 0.3 percent to $1,073 an
ounce by 0635 GMT, but not far from Monday's session low of
$1,069.66. The metal slid 1.5 percent overnight.
"Plunging commodity prices and a stronger dollar set the
stage for a retreat in gold prices," HSBC analyst James Steel
said.
"Prices may stay on the defensive but further losses (are
seen being) limited."
Further weakness in oil prices could trigger fears of
deflation, a bearish factor for gold that is often seen as an
inflation-hedge.
A stronger dollar on the other hand makes
greenback-denominated gold more expensive for holders of other
currencies.
The dollar clung to gains from a two-day rally on Tuesday,
after Friday's strong U.S. nonfarm payrolls data supported
widely held market views that the Fed would hike interest rates
for the first time in nearly a decade later this month. USD/
Higher rates tend to drag on non-interest-paying gold by
increasing the opportunity cost of holding it, while boosting
the dollar.
Bullion has lost about 9.5 percent for the year, its third
straight annual decline, on expectations of the rate hike.
Investor sentiment has been downbeat. Assets in SPDR Gold
Trust GLD , the world's largest gold-backed exchange-traded
fund, tumbled 0.65 percent to 634.63 tonnes on Monday, the
lowest since September 2008.
Speculators held a record high short position in COMEX gold
futures and options in the week to Dec. 1, recent data showed.
Elsewhere, China's gold reserves rose by nearly 21 tonnes
last month, the biggest purchase since it began disclosing
monthly data on the stockpile earlier this year, central bank
data showed on Tuesday.
Among other precious metals, silver XAG= steadied
following a 2 percent drop overnight. Platinum XPT= edged up
after a 3 percent drop on Monday, while palladium XPD=
extended losses.
PRICES AT 0635 GMT
Metal Last Change Pct chg
Spot gold 1073 3.01 0.28
Spot silver 14.24 0.02 0.14
Spot platinum 856.1 2.6 0.3
Spot palladium 546.85 -2.37 -0.43
Comex gold 1072.5 -2.7 -0.25
Comex silver 14.265 -0.067 -0.47
COMEX gold and silver contracts show the
most active months