Gold sits tight near US$1,200 as dollar climbs to 1-mth high

[SINGAPORE] Gold was stuck in a tight trading range above US$1,200 an ounce on Tuesday, as the dollar jumped to a fresh one-month peak against a basket of major currencies on the prospect of higher US interest rates this year.

Spot gold had slipped 0.1 per cent to US$1,205.10 an ounce by 0323 GMT. The metal was little changed in the previous session as liquidity was thin due to US and British holidays.

Bullion was not far off its lowest in about a week. The metal hit US$1,201.20 on Friday after Federal Reserve Chair Janet Yellen said the US central bank was poised to raise interest rates this year.

Investors believe higher US interest rates would dent demand for non-interest-paying gold, while boosting the dollar.

Bullion's limited trading range in recent sessions, along with Yellen's comments and a robust dollar, could mean the metal will drop, analysts said.

Gold may end its consolidation above support at US$1,201 either on Tuesday or Wednesday and fall towards the next support at US$1,182, said Reuters' technical analyst Wang Tao.

Gold's correlation with the dollar has started to strengthen again, and weaken against yields, said Barclays analysts.

"We maintain the view that the third quarter is likely to be the weakest quarter for gold, given that we expect the Fed to start increasing rates in September, but the potential downside is likely to be limited," Barclays' analyst Suki Cooper said in a note dated Monday.

The dollar jumped to a fresh one-month peak on Tuesday, boosted by Yellen's comments and weakness in the euro, which was pressured on worries Greece cannot service debt repayments next month amid a cash crunch.

A stronger dollar makes gold more expensive for holders of other currencies, and also diminishes its safe-haven appeal.

Bullion traders will be keenly eyeing US economic data due later in the day, including consumer confidence and new home sales, for clues on the strength of the economy and how it would impact the Fed's monetary policy.

Focus was also on Greece, which said on Monday it needed aid urgently to be able to pay a loan instalment due next week.

Any worsening of the Greek debt crisis could potentially trigger safe-haven demand for gold.

REUTERS