NEW YORK/LONDON (Reuters) - Gold dipped on Thursday after strong U.S. economic data lifted the dollar and underlined expectations that U.S. interest rates would be hiked.
Spot gold XAU= dropped 0.34 percent at $1,270.01 an ounce by 2:11 p.m. EDT (1811 GMT), while U.S. gold futures GCcv1 for December delivery settled down $3.60, or 0.3 percent, at $1,273.20 per ounce.
The dollar index .DXY rose to a 2-1/2-month high after data showed the U.S. trade deficit narrowed in August as exports of goods and services rose to a more than 2-1/2-year high, while jobless claims fell more than expected.
"The market is focussing on rate hikes, stock markets, a tad stronger dollar and bond yields that have been moving up in expectation of a potential tax deal and rate hike in December," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Expectations of monetary tightening were also supported by Philadelphia Federal Reserve Bank President Patrick Harker saying he was still pencilling in one more rate hike this year and three next year.
Higher interest rates typically boost the dollar and aid bond yields, adding pressure on dollar-denominated, non-yielding gold.
However, the long-term trend in annual U.S. economic growth may be as low as 1.5 percent, San Francisco Federal Reserve President John Williams said, a sombre view implying perpetually low interest rates and a difficult hurdle for the Trump administration's promised economic surge.
Investors await more on Friday from U.S. non-farm payrolls data, with investors expecting a slowdown in new jobs due to disruptions from two major hurricanes in September.
UBS cut its average forecast for gold for 2017 to $1,270 from $1,300 taking into account the likelihood of a December rate hike weighing on the market, metals strategist Joni Teves said in a note.
"Gold is unfortunately still seeing some headwinds from lower coin sales due to lack of price movement on the upside," said George Gero, vice president of RBC Capital Markets in New York.
In other precious metals, silver XAG= rose 0.3 percent at $16.62 an ounce.
Palladium XPD= was up 2.2 percent at $942.10 per ounce after moving last week to a premium over sister metal platinum XPT=, which dropped 0.3 percent at $909.70 per ounce.
"The overall direction of that spread will be determined by gold, whether it manages to find support," Hansen said.
"If it does, platinum has potential for better upside than palladium, given the higher correlation between gold and platinum," he added.
(Additional reporting by Apeksha Nair in Bengaluru; editing by Edmund Blair and Diane Craft)