Gold hits 2-month low as dollar gets boost from Fed

LONDON, Aug 21 (Reuters): Gold slid around 1 per cent to its lowest in two months on Thursday, extending losses to a fifth session as the dollar strengthened on indications from the US Federal Reserve that it could raise interest rates sooner than expected.

Policymakers debated on whether interest rates should be raised earlier given a surprisingly strong job market recovery, minutes from the July meeting of the Fed's rate setting committee showed. Most officials, however, wanted further evidence before changing their view on when rates should be lifted.

Higher interest rates would dull the appeal of non-interest-bearing assets such as gold.

Spot gold fell as much as 1.2 per cent to its lowest since June 19 at $1,276.90 an ounce. It was trading down 0.9 per cent at $1,279.75 by 1212 GMT.

US gold futures dropped as much as 1.6 per cent to $1,274.90, also a two-month low.

"Gold was already on the defensive before the minutes as the tensions in Ukraine were easing and the market was paying less attention ... so you had other drivers like the dollar, which has been moving up since the start of the week," ABN Amro analyst Georgette Boele said.

"And then you had these less dovish minutes, which put extra pressure on gold, and this is also ahead of tomorrow's speech by Yellen at Jackson Hole ... The main topic should be employment, and the way she sounds will be crucial."

The US dollar traded just below 11-month highs against a basket of major currencies, buoyed by rising Treasury yields and the slightly hawkish tone in the US central bank's minutes.