Gold falls as strong data points to central bank tightening

By Peter Hobson

LONDON (Reuters) - Gold fell for a third day on Monday to its lowest since mid-March after strong economic data in the United States and Germany bolstered expectations that central banks will raise interest rates.

Gold is highly sensitive to rising rates because they push up bond yields, increasing the opportunity cost of holding non-yielding bullion. They also tend to boost the dollar, in which gold is priced.

Spot gold, which dropped 2.3 percent last week, was down 0.5 percent at $1,207.27 an ounce by 0938 GMT, having touched $1,204.45, its lowest since March 15.

U.S. gold futures for August delivery slipped by 0.3 percent to $1,206.60.

"On the mind of the gold market is central bankers striking a more hawkish tone. Investors are now pricing in monetary tightening from most central banks," said Danke Bank analyst Jens Pedersen.

The rationale for tightening was bolstered by better than expected U.S. jobs data and strong German export figures.

These also bolstered optimism about the global growth outlook, boosting stock markets and the dollar, encouraging investors to ditch gold for riskier assets.

U.S. 10-year bond yields have risen sharply since late June and are near two-month highs, while gold is down nearly 7 percent from a high of $1,296.97 a month ago.

Investors have sharply scaled back bets on higher prices, reducing their net long positions in COMEX gold in the week to July 3 by more than half to the smallest bullish stance since January.

Holdings of gold at the world's largest bullion-backed exchange-traded fund, SPDR Gold Trust, fell 2 percent in the week to Friday.

However, expectations of higher rates have now been priced in and gold is unlikely to fall much further, Pedersen said.

Analysts at Standard Chartered said that investors should buy at about $1,200 because Indian demand, which was dented by a new sales tax, is likely to recover and U.S. interest rates are expected to rise slowly over the next few years.

Technical support for gold was at $1,200 and $1,195, the March low, ScotiaMocatta analysts said in a note.

In other precious metals, silver was down 2 percent at $15.28 an ounce.

Prices are at their lowest since April last year and investors' net long position in silver in the week to July 3 fell to its lowest since December 2015.

Platinum was down 0.8 percent at $896.74 an ounce and palladium lost 0.5 percent to $834.25.

(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by David Goodman)