Gold in longest slump since November

Bullion for immediate delivery declined 0.5% to $1,242.91 an ounce by 10:27 am in London

Gold fell for a fifth day, the longest run of losses in six months, as speculation that the Federal Reserve will raise interest rates as early as next month strengthened the dollar and dented the metal's allure.

The Bloomberg Dollar Spot Index was near the highest since March after Fed Bank of St. Louis President James Bullard said Monday he doesn't expect a UK vote on European Union membership next month to influence the US central bank's decision. The San Francisco Fed's John Williams said two to three increases this year are still "about right," a sentiment echoed by the Fed's Philadelphia president Patrick Harker.

Gold slid 1.7 per cent last week, extending a drop from the highest in more than a year, as minutes of the Fed's April meeting indicated that US rates may be increased sooner than previously thought. Higher borrowing costs reduce the appeal of owning non-interest-bearing assets and tend to strengthen the dollar, cutting demand for gold as an alternative investment.

"The surprisingly hawkish FOMC minutes last week, which highlighted a June rate rise is back on the cards, has seen the dollar and Treasury yields advance, making life tougher for gold," Jonathan Butler, a precious metals strategist at Mitsubishi Corp in London, said by e-mail. The Fed may still delay moves as it seeks greater clarity on the economy's strength, he said.

Bullion for immediate delivery declined 0.5 per cent to $1,242.91 an ounce by 10:27 am in London, according to Bloomberg generic pricing.

The odds of a rate rise by July are now at 54 per cent, compared with 26 per cent at the start of May, Fed funds futures data show. Increasing chances of a rate hike in June are likely to weigh on gold, Australia & New Zealand Banking Group said in a report. Fed Chair Janet Yellen is due to deliver remarks on Friday.

While prices have dropped this month, it may prove an opportunity to "buy the dip," analysts at Citigroup Inc said in a report.

The bank raised its year-end forecast by $100 to $1,250, anticipating just one rate increase in 2016 toward the end of the year, "effectively limiting the likelihood of a correction in gold prices for the next two quarters," according to the report.

Investors keep buying gold through exchange-traded products. Holdings rose 4.5 metric tonnes to 1,847.9 tonnes as of Monday, the highest since November 2013, data compiled by Bloomberg show.