By Clara Denina
LONDON (Reuters) - Gold prices edged lower on Tuesday as the dollar strengthened on increasing bets that the Federal Reserve will raise U.S. interest rates in December.
Speaking to reporters in Sydney, Chicago Fed President Charles Evans said on Tuesday he "could be fine" with raising U.S. interest rates in December, but that he would prefer to see how the economy and inflation progressed before deciding.
Traders have priced in a 70-percent chance that the Fed will hike rates at a Dec. 13-14 meeting, up from 66 percent early Friday, according to CME Group's FedWatch tool.
Spot gold had dropped 0.4 percent to $1,254.02 an ounce by 1130 GMT. U.S. gold futures also fell 0.4 percent to $1,255.80 an ounce.
Bullion touched a four-month low of $1,241.20 an ounce on Friday and registered its biggest weekly drop for 11 months, down 4.5 percent, after forecast-beating U.S. data and comments from Fed officials saying there was a strong case for raising rates.
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"Funds have been quite reluctant to let go of the longs, but once the $1,300 level was broken, the floodgates just opened," Saxo Bank senior manager Ole Hansen said.
"We are highlighting the risk that the dollar will move higher because of higher interest rates."
The dollar hit an 11-week high against a basket of six major currencies, making dollar-denominated gold more expensive for holders of other currencies.
Investors are also waiting for Wednesday's release of minutes of the latest Federal Reserve Open Market Committee meeting to see how close the central bank was to hiking rates last month.
Gold is highly sensitive to increases in U.S. interest rates, which can lift the opportunity cost of holding non-interest-bearing gold.
Among other precious metals, silver was down 0.6 percent at $17.51 an ounce.
Platinum was 0.1 percent lower at $959.40 an ounce and palladium fell 0.7 percent to $660.50.
(Addional reporting by Swati Verma in Bengaluru; editing by Alexandra Hudson)