Gold dips further from 3-1/2-month peak as dollar fights back

[NEW YORK] Gold edged lower on Monday, retreating further from last week's 3-1/2-month high as the US dollar regained some ground against the buoyant euro and traders bet on further US interest rate hikes after Friday's payrolls data.

The dollar, which has remained weak after its biggest annual drop since 2003, had helped to lift assets priced in the US currency, with gold last week registering a fourth straight weekly gain for the first time since April.

Spot gold was down 0.1 per cent at US$1,318.84 an ounce by 1.41pm EST (1841 GMT), while US gold futures for February delivery settled down US$1.90, or 0.1 per cent, at US$1,320.40 per ounce.

"Gold has been following the dollar pretty heavily. We are watching the dollar relative to US deficits," said Rob Haworth, senior investment strategist for US Bank Wealth Management. "Higher deficits, which it looks like tax cuts will do, means a weaker dollar. So there's room for gold."

The dollar rose 0.5 per cent against the euro on Monday.

After mixed US payrolls data on Friday, traders of US short-term interest rate futures continued to bet that the Federal Reserve will hike US interest rates at least twice in 2018.

Gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

Market participants are awaiting US Consumer Price Index (CPI) data later this week, which are expected to show inflation likely increased 0.2 per cent in December after rising 0.1 per cent in November.

"Investors think the Fed is stuck on a path of three rate hikes right now. Everyone's waiting to see what that inflation is," said Chris Gaffney, president of St Louis-based EverBank's world markets division.

Longer term, sentiment for gold is bullish, Mr Haworth said.

"You've seen the longs rebuild pretty heavily. So the market's kind of following this trend at this point," he added, referring to the recent commitment of traders report.

US stocks were little changed after starting 2018 with strong gains last week.

Among other precious metals, silver was down 0.7 per cent at US$17.11 an ounce, having hit a 1-1/2-month high of US$17.29 on Friday.

Platinum was 0.2 per cent at US$971.40 an ounce after touching a more than 3-1/2-month peak at US$973.60 and palladium was 0.9 per cent higher at US$1,099.60, off last week's record high of US$1,105.70.

REUTERS