Gold eases on higher dollar, U.S. rates in focus

By Clara Denina

LONDON (Reuters) - Gold inched lower on Monday, retreating from a near 3-week high hit in the previous session, as the dollar recovered from the lows, but uncertainty on the Federal Reserve's interest rates path limited losses.

Spot gold was down 0.1 percent at $1,349.15 an ounce at 1006 GMT. Bullion hit $1,355.10 on Friday, its highest level since July 12, after after much slower-than-expected U.S. economic growth weighed on the dollar.

U.S. gold eased 0.1 percent at $1,356 an ounce.

The U.S. Commerce Department reported that GDP grew at an annual rate of 1.2 percent in the second quarter, far less than economists' estimates of 2.6 percent growth.

The data came after the U.S. Federal Reserve gave no hints of any near-term interest rate rise as some had expected it to at its monthly policy meeting last week.

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

The dollar rose 0.2 percent against a basket of six currencies, crawling away from its lowest since July 5 hit on Friday. European equities fell slightly after a steadier start. [FRX/]

"Although equities are performing well, there is concern that that might be topping out, while the lack of clarity over the Fed's interest rates policy is providing a negative real yield environment that favours gold," ETF Securities analyst Martin Arnold said.

Top U.S. Fed policymakers held varying opinions about rate hikes, with Dallas Fed President Robert Kaplan calling for caution, while San Francisco Fed President John Williams expected the central bank to raise interest rates up to two times before year-end.

A sidelined Fed between now and year-end should weaken the dollar, pushing gold to test July highs of $1,374 levels, with an outside chance of getting to $1,400, INTL FCStone said in a note.

Markets will closely monitor this week's data, which includes the closely watched monthly non-farm payrolls report on Friday.

"If (payrolls data) is ...weak, then people will change their expectations about the U.S. economic prospects drastically. If they are relatively good, bad GDP data could be counterbalanced by good jobs data," said Jiang Shu, chief analyst at Shandong Gold Group.

Speculators increased their net long position in COMEX silver contracts, but cut net long positions in gold, in the week to July 26. [CFTC/]

Spot silver touched a 3-week high of $20.64 an ounce, before steadying up 0.9 percent at $20.49.

Platinum, which hit over 14-month highs on Friday, was up 0.2 percent at $1,145.24 an ounce, while palladium was unchanged at $709.88. It hit its highest in over 9-1/2 months on Friday.

(Additional reporting By Nallur Sethuraman in Bengaluru; Editing by William Hardy)