Gold falls as stronger dollar weighs on prices

By Jan Harvey

LONDON (Reuters) - Gold fell more than 1 percent on Monday, extending losses for a third day as the dollar strengthened, but prices remained underpinned by expectations that the ultra-low interest rate environment will persist on a global level.

The dollar is up 0.1 percent against the euro after falling for three successive weeks, most recently after U.S. Federal Reserve policymakers revised down the number of times they expect to raise interest rates this year to two from four.

Spot gold was down 0.8 percent at $1,244.91 an ounce at 1000 GMT, while U.S. gold futures for April delivery were down $8.60 an ounce at $1,245.70. The metal has risen 17 percent this year as expectations for fresh rate hikes faded.

Gold rallied on Wednesday after the Fed cut the number of interest rate hikes it foresees this year, but the metal failed to revisit the previous week's 13-month high and quickly slid lower as the U.S. unit bounced back.

"(Gold is) under pressure once again this morning as the dollar strengthens," Mitsubishi analyst Jonathan Butler said. "Despite the Fed's 'lower for longer' stance, it still looks to be one of the more hawkish central banks, compared with the European Central Bank and Bank of Japan with zero and negative interest rate policies respectively."

Ultra-low interest rates cut the opportunity cost of holding non-yielding assets like gold, as well as stoking longer-term fears over inflation.

Market indicators are signalling that investors see stronger risks of inflation, which has been almost non-existent since the credit crisis, despite scepticism from the Fed and the relatively slow pace of U.S. economic growth.

Holdings of gold-backed exchange-traded funds, which issue securities backed by physical metal, continued to rise.

The largest, New York-listed SPDR Gold Shares, reported an inflow of another 11.9 tonnes on Friday, bringing its total inflow for the year to 176.6 tonnes, up from 40.8 tonnes in the same period of last year. [GOL/ETF]

Trading was quiet in the big physical gold markets in Asia overnight, with Japan closed for a holiday.

"Gold opened right where we closed last week and it was primarily small offers which dominated early flows," MKS said in a note. "The turnover on Ecomex was noticeably lower than what we saw last week and may continue for the rest of the week, considering the shortened Easter holiday week for most Western markets."

Among other precious metals, silver was down 0.2 percent at $15.75 an ounce, while platinum was down 0.3 percent at $695.05 an ounce and palladium was down 0.6 percent at $585.10 an ounce.

(Additional reporting by Melanie Burton in Melbourne; Editing by Keith Weir)