Chicago, Dec 29 (IANS): Gold futures on the COMEX division of the New York Mercantile Exchange fell on Monday as crude oil fell more than two percent over the US holiday weekend.

Analysts note that the price of gold often follows oil as investors look to hedge their bets against oil-led inflation, Xinhua reported.

The most active gold contract for February delivery fell $7.6 (or 0.71 percent) to settle at $1,068.30 per ounce.

Gold was put under further pressure as a report released by the Dallas branch of the Federal Reserve released its manufacturing survey on Monday, showing rising factory activity. The production index increased to 13.4 during the month of December.

The US Dollar Index, a measure of the dollar against a basket of major currencies, rose by 0.07 to 97.94. Gold and the dollar typically move in opposite directions.

Low volume was the feature of the day due to the two consecutive shortened holiday weeks but the precious metal's price was put under further pressure as analysts believe the market remains unsure of when the next rate hike, from a 0.50 rate to a 0.75 rate, will occur.

The Fedwatch tool shows an implied probability indicating that the market believes that the Fed may raise rates from 0.50 to 0.75 during the March Federal Open Market Committee (FOMC) meeting.

The current implied probability of a hike from 0.50 to 0.75 is at 55 percent at the March meeting, and 10 percent at the January meeting.

Analysts believe the goal of the Fed is to soak up some of the banks' 2.5 trillion US dollars of excess reserves as the US economy begins to recover.

Banks become more willing to take risks in a bullish economy, and as a result could potentially release some of their excessive reserves, flooding the economy with cash, causing inflation.

The long-term trend for gold remains strongly bearish as the Fed hiked its interest rate in December, which came despite expectations for a delay in the rate hike until 2016.

An increase in the Fed's interest rate drives investors away from gold and towards assets with a return, as the precious metal bears no interest.

Till the December FOMC meeting there had not been an increase in the Fed's interest rate since June 2006, before the beginning of the American financial crisis.

Silver for March delivery dropped 49.5 cents, or 3.44 percent, to close at 13.884 dollars per ounce.

Platinum for January delivery fell $3.4 (0.38 percent) to close at $880.80 per ounce.