* Fed officials hint at possible rate hike in June
* Dollar index rises, weighing on bullion
* Coming up: Minutes of Fed's April policy meet
(Updates prices)
By Koustav Samanta
BENGALURU, May 18 (Reuters) - Gold dropped on Wednesday
after strong U.S. economic data and comments from the central
bank officials bolstered expectations that the Federal Reserve
could soon hike interest rates.
A Fed policymaker said on Tuesday he will push for an
interest rate hike in June or July, and two others predict upto
three rate increases this year.
Gold is highly sensitive to rising rates, which lift the
opportunity cost of holding non-interest yielding bullion.
Spot gold XAU= dipped 0.5 percent to $1,273.20 per ounce
at 0640 GMT, after gaining 0.5 percent in the previous session.
U.S. gold futures GCcv1 fell 0.2 percent to $1,275.
"The prices have slipped slightly today... that is partly
due to speculation or increased bets that the Fed will be
listing higher rates this year," said Vyanne Lai, analyst,
National Australia Bank.
Bullion has rallied 20 percent this year on speculation that
the Fed has slowed down its expected pace of rate increases on
concerns about global economic growth and the volatility of
stock markets.
In its April policy statement, the Fed indicated it wants to
have more confidence in the economy's overall health before
hiking rates again.
U.S. data on Tuesday showed that consumer prices recorded
their biggest increase in more than three years in April.
Housing starts and industrial production rebounded strongly last
month, suggesting the economy was regaining steam early in the
second quarter after almost stalling early in the year.
Strong economic data could prompt the Fed to raise rates
sooner than later.
Traders will be eyeing the Fed's April meeting minutes which
is due later in the day for further cues on U.S. interest rate
outlook.
"I think a lot of investors are holding back as they are
waiting for the FOMC minutes," said Brian Lan, managing director
at Singapore-based gold dealer GoldSilver Central.
"Officials have been saying they wish to raise the rates but
unless and until Fed Chair Janet Yellen mentions something I
don't think the market will actually take that into
consideration," he added.
Dollar strength also weighed on gold and other precious
metals on Wednesday. The dollar index .DXY , which measures the
greenback against six major currencies, rose 0.3 percent. USD/
Holdings in SPDR Gold Trust GLD , the world's largest
gold-backed exchange-traded fund, rose 0.56 percent to 855.89
tonnes on Tuesday, the highest since November 2013. GOL/ETF
Spot silver XAG= slipped 0.9 percent to $17.07 per ounce,
spot platinum XPT= dropped 0.5 percent at $1,043.95 per ounce
and spot palladium XPD= fell 0.2 percent to touch $581.20 an
ounce.