1st LD Writethru: Gold down on strong dollar, despite lower U.S. inflation data

Gold futures on the COMEX division of the New York Mercantile Exchange fell slightly on Friday as a stronger U.S. dollar outweighed lower-than-expected U.S. inflation data.

The most active gold contract for December delivery fell 0.1 U.S. dollars, or 0.01 percent, to settle at 1,080.90 dollars per ounce.

The U.S. Dollar Index, a measure of the dollar against a basket of major currencies, rose by 0.53 percent to 99.08 as of 18:10 GMT.

Strength in the U.S. dollar put pressure on the precious metal. Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors holding other currencies.

However, lower producer prices data cushioned the impact of a strong dollar on the precious metal. The U.S. Department of Labor said on Friday that the Producer Price Index (PPI) fell 0.4 percent in October, down 1.6 percent year on year.

The figure, falling for a second straight month, will weigh on Fed's mind during the December Federal Open Market Committee (FOMC) meeting, analysts said.

In previous statements, the Fed set the desired inflation rate at 2 percent, which the central bank said best aligned with its mandated goals of price stability and full employment.

The inflation has long run below the Fed's 2 percent target, but some analysts believed the Fed may raise interest rates anyway.

According to the CMEGroup's Fedwatch tool, the current implied probability of a rate hike during the December FOMC meeting is 68 percent.

Expectations were originally for a delay in the rate hike until 2016, but the FOMC meeting in late October left the door open for a year-end rate hike.

An increase in the Fed's interest rate drives investors away from gold and toward assets with a return, as the precious metal bears no interest.

The Fed has not hiked its benchmark rate in nearly 10 years, and it has been near zero since the 2008 financial crisis.

Gold was given additional support as a report released by the U.S. Department of Commerce showed retail sales rising by only 0.1 percent, below market expectations. However, core sales, which exclude vehicles and gasoline stations, rose 0.3 percent, in line with expectations.

Silver for December delivery fell 2.1 cents, or 0.15 percent, to close at 14.204 dollars per ounce. Platinum for January delivery dropped 13.2 dollars, or 1.51 percent, to close at 863.70 dollars per ounce. Enditem