Gold struggles near US$1,200 on Yellen comments, robust dollar

[SINGAPORE] Gold was trading close to its lowest level in over a week on Monday after Federal Reserve Chair Janet Yellen indicated the US central bank was likely to raise interest rates this year and as the dollar strengthened to its highest in a month.

Spot gold had slipped 0.1 per cent to US$1,204.55 an ounce by 0335 GMT, close to US$1,201.20, the metal's lowest since May 13 reached in the previous session.

Ms Yellen was clearer than ever on Friday that the central bank was poised to raise interest rates this year, as the US economy was set to bounce back from an early-year slump and headwinds at home and abroad waned.

"Yellen's comments and the positive impact it has had on the dollar is not helping gold," said a trader in Singapore.

"It does look like the Fed will hike rates this year despite the disappointing data we have seen so far. The dollar is also regaining momentum, so we could see gold drop below US$1,200 soon," the trader said.

In a speech to a business group, Ms Yellen said she expected the world's largest economy to strengthen after a slowdown due to "transitory factors" in recent months and noted that some of the weakness might be due to "statistical noise".

Bullion investors believe higher US interest rates would dent demand for non-interest-paying gold.

The prospect of higher rates boosted the dollar to its highest in a month on Monday against a basket of major currencies. US inflation data from Friday also supported the greenback.

A stronger dollar makes gold more expensive for holders of other currencies, while also diminishing the metal's appeal as a safe haven.

Liquidity is likely to be thin on Monday as British and US markets are shut for holidays.

In the physical markets, gold demand across Asia is soft as investors channel their money towards higher-yielding stock markets.

Indian gold jewellery demand in the second half of the year could take a hit as the Hindu calendar shows the number of dates seen as being auspicious for weddings will drop 40 per cent in the second half from a year earlier.

Persistent weakness in the physical markets could undermine any rallies.

REUTERS