1st LD Writethru: Gold down on stronger U.S. dollar

Gold futures on the COMEX division of the New York Mercantile Exchange fell on Monday as the U.S. dollar showed strength.

The most active gold contract for February delivery fell 8.9 U.S. dollars, or 0.82 percent, to settle at 1,075.20 dollars per ounce.

Gold was put under pressure as the U.S. dollar index rose by 0.42 to 98.71 as of 18:00 GMT. The index is a measure of the dollar against a basket of major currencies.

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.

The rise in the U.S. dollar followed a short rally by gold on Friday as investors began to cover shorts ahead of the U.S. Federal Reserve's December Federal Open Market Committee (FOMC) meeting.

While expectations for a rate hike at the December FOMC meeting remained high, many traders still chose to avert the risk of holding a position gold through a FOMC meeting, despite the trade potentially working in their favor, as the markets make wild swings during FOMC press conferences.

The CMEGroup's Fedwatch tool shows a 79 percent chance of a rate hike during the December FOMC meeting. This figure was as low as 40 percent during the month of November, and has risen rapidly since then in the wake of positive U.S. data.

Analysts believed that the market has now fully factored in the expected December rate hike, and that the market is now unsure of when the next rate hike, from a 0.50 rate to a 0.75 rate will occur.

The Fedwatch tool shows an implied probability indicating that the market believes that the Fed may raise rates from 0.50 to 0.75 during the March FOMC meeting. The current implied probability of a hike from 0.50 to 0.75 is at 38 percent at the March meeting, and 11 percent at the January meeting.

The weekly jobless claims data is due out on Thursday as well as the Producer Price Index, a measure of inflation that the Fed watches closely, along with the retail sales report. Analysts believeD that none of these reports are likely to impact the chances of a December rate hike as the expectation is already nearly cemented in the markets.

An increase in the Fed's interest rate drives investors away from gold and towards assets with a return, as the precious metal bears no interest. There has not been an increase in the Fed's interest rate since June 2006, before the beginning of the American financial crisis.

Silver for March delivery fell 19.6 cents, or 1.35 percent, to close at 14.332 dollars per ounce. Platinum for January delivery fell 17.4 dollars, or 1.98 percent, to close at 863.20 dollars per ounce. Enditem