Gold cuts losses as dollar pauses; focus on US jobs data

Gold edged higher on Tuesday as the dollar paused ahead of US non-farm payroll data later in the week that could give clues as to when the Federal Reserve will raise interest rates.

Spot gold fell initially then rebounded 0.3 per cent to $1,191 an ounce by 1143 GMT. US gold futures for June delivery were up $3.30 an ounce at $1,190.10. The dollar pared earlier gains to trade flat against a basket of major currencies.

Gold fell to a six-week low of $1,170 on Friday after the Federal Reserve indicated it saw a slowdown in the US economy as transitory and did not rule out a rate rise this year.

“US data will continue to be very important. If it’s good, we will eventually get lower gold prices,” Natixis analyst Bernard Dahdah said.

However, with an interest rate increase now likely in September rather than June, gold prices will probably remain in the current range for longer and will not drop as quickly as previously thought, Dahdah said.

Speculation over the timing of a rate rise has kept markets on edge. Doubts still persist over the robustness of the US economy as data has been mixed, with many traders pushing expectations of a rate increase from June to later this year.

Strong data, however, could prompt the Fed to raise interest rates soon, a move investors would expect to dent demand for bullion, which does not pay interest.

Chicago Fed President Charles Evans provided no clarity on the issue on Monday. He said rate hikes could begin this year, although with inflation uncomfortably low and the unemployment rate still too high, he said the U.S. central bank should hold off on raising rates until early next year.

An early rate hike this year is not as unlikely as markets believe, said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

"Gold prices are going to move around $1,200 because of the uncertainty over the timing. The dominant factors influencing gold are interest rates and monetary policy," he said.

Silver was down 0.1 percent at $16.38 an ounce after climbing to a four-week high on Monday. Platinum fell 0.3 percent to $1,142 an ounce, while palladium lost 0.2 percent to $778.10 an ounce.