* Dollar index hits highest in a month
* Silver hits two month low
* Platinum hits palladium parity for first time in 16 years
(Updates prices, adds details) LONDON, Sept 27 (Reuters) - Rising expectations that the U.S. Federal Reserve will raise interest rates again this year drove gold to a month low on Wednesday, after its biggest one day loss in almost two years during the previous session. Platinum meanwhile hit parity with palladium for the first time since 2001 on diverging demand expectations. Platinum is used more heavily in the diesel engines that have fallen out of favour since 2015's Volkswagen emissions-rigging scandal.
Spot gold sank 0.7 percent to $1,284.37 per ounce by
1354 GMT after tumbling 1.3 percent in the previous session. Earlier it hit its lowest since Aug. 25 at $1,282.23.
U.S. gold futures for December delivery fell 1.1
percent to $1,287.50. The dollar touched a one-month high against a basket of
currencies after Federal Reserve chief Janet Yellen said
on Tuesday it would be "imprudent" to keep rates on hold until U.S. inflation hits 2 percent. Markets are pricing in a 76 percent chance the Fed will raise borrowing costs in December, compared with less than 20 percent only a month ago. "At the moment the dollar is weighing on gold but it will not continue at this pace," Commerzbank analyst Carsten Fritsch said. "The fact that there's going to be a rate hike in December will cap gains in gold, on the other hand North Korea will prevent a price decline, and there's the risk of a stock market correction." Gold is highly-sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion versus the dollar. In the equity markets, prices rose as U.S. President Donald Trump's administration prepared to outline a new tax plan to boost growth, lifting assets perceived as risky over those seen as being safer, such as gold. Limiting losses in gold however were lingering tensions between the U.S. and North Korea. "Gold lost what it gained on North Korea (tensions) since Friday after Yellen's comments," said Yuichi Ikemizu at ICBC Standard Bank in Tokyo. "But I think the (North Korea) situation is more serious than the Fed's policies. So gold is supported around here and I expect prices to go back up to $1,300."
Silver was flat at $16.77 per ounce, having dropped
2.4 percent in the previous session, its biggest one day fall since mid-August. Earlier, the metal hit its lowest since mid-August at $16.69.
Platinum fell 0.6 percent to $916.70 per ounce, after
slipping about 2 percent in the previous session, its biggest fall since early July, and hitting a two month low of $912.50.
Palladium rose 0.3 percent to $917.72.
(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by Elaine Hardcastle/Louise Heavens/Alexander Smith)