Gold falls for third day as dollar rally damps investment demand

[SINGAPORE] Gold fell a third day as the dollar rebounded on prospects of a US interest-rate increase next month, dimming the metal's appeal as an alternative investment.

Bullion for immediate delivery fell as much as 0.5 per cent to US$1,279.75 an ounce and was at US$1,281.57 at 10:43 am in Singapore, according to Bloomberg generic pricing. The metal reached US$1,303.82 on Monday, the highest intraday level since January 2015.

Prices have rallied 21 per cent in 2016 after three years of losses, as investors returned to haven assets amid concerns that a deteriorating global economy may delay the end of low borrowing costs in the US The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, rallied from a one- year low on Tuesday after two Federal Reserve officials said an interest-rate increase could be considered next month.

"Even though gold has retraced slightly, I am still bullish for this week," said Raymond Mok, head of foreign exchange and bullion development at Sucden Financial (HK) Ltd.

"A weaker dollar and lower expectation of a rate hike" will be supportive of gold, he said.

Fed Bank of Atlanta chief Dennis Lockhart called a June rate hike "a real option," while his San Francisco counterpart John Williams said he would support such a move if the US economy stayed on track.

Investors see a 12 per cent chance of a rate-rise next month, futures data show. Officials including St Louis Fed chief James Bullard are due to speak this week.

Bullion of 99.99 per cent purity fell as much as 1.1 per cent to 267.8 yuan a gram on the Shanghai Gold Exchange.

Spot silver fell 0.8 per cent, platinum retreated 0.5 per cent and palladium slid 0.4 per cent.

BLOOMBERG