Gold below multi-week highs; PGMs tumble on equities rout

Spot gold was down 0.2% at $1,158.51 an ounce

Gold edged lower on Monday but remained near a seven-week high as the dollar and shares tumbled on concerns about the Chinese economy and uncertainty over the timing of a U.S. rate rise.

The dip was partly due to heavy losses in the rest of the commodities sector, with crude oil down almost 4 percent and copper falling to a six-year low. Platinum dropped 3 percent and palladium hit its lowest in three years at $564 an ounce.

Spot gold was down 0.2 percent at $1,158.51 an ounce by 1145 GMT, with investors taking profits after the metal hit its highest since July 7 at $1,168.40 on Friday. It gained more than 4 percent last week, the most since mid-January.

"Gold is holding on to some of the gains it made last week and that speaks to the difficulty in the global equity market right now," Mitsubishi Corp strategist Jonathan Butler said.

Gold has now rebounded 7 percent from a 5-1/2-year low of $1,077 reached in late July, benefiting from uncertainty posed by China's surprise devaluation of its yuan currency and the move's impact on the dollar.

The U.S. currency fell to its lowest in two months against a basket of currencies, down 1.1 percent, as more investors priced out chances of a rate increase in September.

A potential delay in a Fed rate move could offer some short-term upside potential for non-interest bearing gold.

Fed officials planning to lift interest rates as soon as next month have been encouraged by solid U.S. jobs growth, but inflation holds the key to how far the Fed can go in moving rates away from zero.

However, worries about global deflation would not bode well for gold, typically seen as an hedge against inflation.

"Deflation by itself is not positive for gold ... but because so much hinges on what the Fed will do later this year, any increased expectation of low inflation or deflation for a period of time means that a rate rise is pushed back even further into the future," Butler said.

European stocks were 3.2 percent in the red after their Asian counterparts slumped to three-year lows.

"China has been the global cushion ... that took in all the deflationary pressure as well as providing global growth," said Howie Lee, analyst at Phillip Futures in Singapore.

"The fear right now is there's nothing to fall back on," said Lee. Gold looks on track to rally to $1,200, he said, a level last seen in June.

Spot silver dropped 2.5 percent to $14.92.