Gold hits nine-month trough on dollar strength

Gold hit a new nine-month low on Tuesday, as the U.S. dollar at a 20-year high stifled demand for bullion, but a slight recovery in the euro against the greenback limited further losses.

Spot gold was up 0.1% at $1,734.97 per ounce as of 0229 GMT, after hitting its lowest since Sept. 30 of $1,722.36 earlier in the session.

U.S. gold futures firmed 0.2% to $1,734.20.

"Gold looks like it is trading in direct correlation with EUR/USD in Asia," finding some support as the euro recovered slightly, but if EUR/USD falls through 1.0000 in Asia, gold could drop toward $1,700, OANDA senior analyst Jeffrey Halley said.

The euro was near parity to the dollar amid concerns that an energy crisis could tip Europe into recession, while the U.S. Federal Reserve continues to aggressively tighten policy to curb inflation.

Strength in the dollar makes greenback-priced gold more expensive for buyers holding other currencies.

U.S. consumer price index data, a key measure of inflation, is due Wednesday, and is expected to show prices rose 8.8% in June from a year earlier.

Recent inflation data has not been encouraging, Atlanta Fed president Raphael Bostic said on Monday, saying the lack of month-to-month improvement in the pace of price increases warrants another 0.75 percentage point increase in the federal funds rate when policymakers meet later this month.

Higher interest rates increase the opportunity cost of holding bullion, which yields no interest.

Benchmark U.S. 10-year Treasury yields eased, somewhat buoying demand for gold.

"Gold seems to have found a few friends near $1,730 over the last couple of days, without ever seriously looking like it would reverse its recent selloff," Halley said.

Spot silver rose 0.3% to $19.14 per ounce, platinum

dipped 0.7% to $863.82, and palladium dropped 1% to $2,140.80.