Gold at five-week top as markets gear up for Donald Trump administration

Gold rose to a five-week high on Monday as markets reassessed the outlook for the U.S. economy after Donald Trump is inaugurated as president later this month, taking support from the falling dollar and lower U.S. Treasury yields.

Spot gold

The metal posted its biggest weekly increase in two months last week.

This came after it slid more than 12 percent in the last quarter as Trump's election victory boosted expectations that his tax and spending policies would boost the dollar and inflation, prompting more U.S. rate increases.

"A slight pullback in yields and a tiny dip in the dollar and weaker equities are enough to support gold, which is starting to benefit from greater stability in emerging markets," said James Steel, chief metals analyst for HSBC Securities in New York.

Strong outflows from gold-backed exchange-traded funds have also lessened of late, while seasonal buying in the big Asian gold markets, where India is deep into wedding season and China is approaching the Lunar New Year, has been strong.

"There is an element of people taking a step back from expectations that were formed shortly after the U.S. elections," UBS analyst Joni Teves said.

"People are now paring back those expectations until we get strong evidence of an acceleration in U.S. growth, or further guidance from the new administration on what their plans are, and whether they will be able to deliver anything close to what people had been pricing in."

Hedge funds and money managers cut their net long position in COMEX gold contracts for the eighth straight week in the week to Jan. 3, data showed late on Friday.

On Monday, Boston Federal Reserve President Eric Rosengren called for the U.S. central bank to step up its pace of interest rate increases, while Atlanta Fed President Dennis Lockhart said the possibility of a fiscal boost under Trump has shifted economic risks to the upside.

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

Platinum and palladium, precious metals that also have industrial uses as autocatalysts, extended their rallies to new peaks.

Spot platinum rose as much as 1.6 percent to $981.90 an ounce, a two-month high and near the 200-day moving average. Palladium rose 1.6 percent to a five-week high at $768.10.

Silver was up 0.8 percent at $16.61.