Gold dips on robust dollar, Yellen comments on rate hike

By Clara Denina

LONDON (Reuters) - Gold edged lower on Monday as the dollar strengthened to a one-month high on signs the Federal Reserve is readying to raise interest rates for the first time in six years in 2015.

In a speech to a business group on Friday, Fed Chair Janet Yellen indicated the U.S. central bank was poised to raise rates this year as the world's largest economy was set to bounce back from an early-year slump and headwinds at home and abroad waned.

Higher U.S. interest rates would increase the opportunity cost of holding non-yielding bullion.

Spot gold was down 0.1 percent at $1,204.46 an ounce by 0847 GMT, just above a near-two-week low of $1,201.20 hit in the previous session. It posted its biggest weekly drop in a month last week, down 1.4 percent.

Liquidity was likely to remain thin on Monday as British and U.S. markets are shut for holidays.

"The Fed raising the rates is certainly not a electrifying news for the precious metal, which is on track to extend its biggest weekly decline since April," AvaTrade chief market analyst Naeem Aslam said.

"Yellen last week has confirmed that she is still confident that the rates will rise this year and (gold) traders are not fond of this news at all."

The prospect of higher rates later in 2015 boosted the dollar to its highest in a month against a basket of major currencies on Monday. Stronger-than-expected underlying U.S. inflation and persisting Greek debt worries also supported the greenback.

A stronger dollar makes gold more expensive for holders of other currencies, while diminishing the metal's appeal as an hedge against risk.

"The dollar is also regaining momentum, so we could see gold drop below $1,200 soon," a Singapore-based trader said.

In the physical markets, gold demand across Asia was soft as investors channel their money towards higher-yielding stock markets.

Indian gold jewellery demand in the second half of the year could take a hit as the Hindu calendar shows the number of dates seen as being auspicious for weddings will drop 40 percent in the second half from a year earlier.

In other Asia-related news, China has established a fund that is expected to raise about $16 billion for gold-backed investment as part of its "Silk Road" initiative to develop trade and transport infrastructure across Asia and beyond, official media reported.

Silver was down 0.9 percent at $16.96 an ounce, after falling 2.2 percent last week. Platinum dropped 0.3 percent to $1,140.45 an ounce and palladium fell 0.6 percent to $776.45 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Mark Potter)