Gold falls on firmer dollar as U.S. rate hike bets intact

By Manolo Serapio Jr

SINGAPORE (Reuters) - Gold dropped for a fifth session in six on Tuesday as a firmer dollar eroded modest gains to drag bullion back below $1,200 an ounce, while prices are likely to come under further pressure amid a looming hike in U.S. interest rates.

Recent comments from Federal Reserve officials suggest the U.S. central bank has not ruled out the chance of raising interest rates by June even as some analysts doubt that possibility amid signs of renewed economic weakness.

A U.S. rate increase, which would be the first in nearly a decade, dims the appeal of assets such as gold which do not pay interest.

Spot gold was down 0.5 percent at $1,192.10 an ounce at 0623 GMT, after hitting a session low of $1,189.45, its weakest since April 1. U.S. gold for June delivery fell 0.6 percent to $1,192.20 an ounce.

The strength in the U.S. dollar, which has basked in the growing likelihood that the Fed would raise rates this year, has been a key headwind for bullion.

"The cycle of the strong U.S. dollar has not ended. We are not very bullish about gold's price performance this year," said Jiang Shu, analyst at Industrial Bank in Shanghai.

Citigroup said it has cut its 2015 average gold price estimate to $1,190 from $1,220, citing "fundamental tightness being outweighed by continued U.S. dollar strength and macro investment headwinds".

Gold could fare well in the current quarter if the Fed does decide not to increase rates as early as June, but the metal is still at risk of turning lower when the U.S. central bank moves later in the year, said Jiang, who sees gold moving near $1,100 towards end-2015.

Gold has not dropped too far off a seven-week top above $1,220 hit last week, indicating bulls were ready to push prices up if more signs emerge that a U.S. rate hike would be delayed.

Investors are eyeing U.S. retail sales data for March due out at 1230 GMT which may provide more clues on U.S. economic conditions. Phillip Futures analyst Howie Lee said a soft reading could lift gold to $1,210.

Amid weaker gold prices, Canadian gold miners Alamos Gold Inc and AuRico Gold Inc unveiled a $1.5 billion merger plan on Monday, setting the stage for possible competing offers as miners scout for assets.

(Editing by Himani Sarkar)