Gold firm as uncertainty about U.S. rates saps dollar

By Sumita Layek

BENGALURU (Reuters) - Gold inched higher on Monday as comments by U.S. Federal Reserve officials on the economy raised uncertainty about how much more U.S. interest rates would rise, weighing on the dollar.

Spot gold was up 0.1 percent at $1,222.06 per ounce, as of 1115 GMT, having hit a one-week high of $1,225.29 in the previous session.

U.S. gold futures were flat at $1,222.60 per ounce.

The dollar steadied after posting its biggest weekly drop in two months last week as Fed policymakers raised muted concerns about a potential global slowdown, leading markets to suspect the rate tightening cycle may not have much further to run.

"If we hear more dovish comments on the tightening cycle, this will drag the dollar lower and give another push to gold prices," said Hussein Sayed, chief market strategist at FXTM.

Higher interest rates raise the opportunity costs of holding gold, which does not pay interest and incurs costs to store and insure.

The Fed raised rates three times so far this year and a fourth rate increase is expected next month.

"We will continue to see some consolidation between $1,200 and $1,250 for a couple of weeks until we see a kind of catalyst... this could be Brexit negotiations, the G20 meeting between U.S. and China," Sayed said.

World shares rose on Monday, amid conflicting signals about a potential truce in the China-U.S. trade dispute.

"Unless we see more turbulence in emerging markets and industrialized country stock markets, then the outlook for gold is not positive," a Germany-based analyst said.

Indicative of investor sentiment toward bullion, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.2 percent to their lowest in a week on Friday.

Meanwhile, hedge funds and money managers boosted their net short position in gold to the highest in five weeks.

In other precious metals, palladium was up 0.2 percent at $1,180 per ounce, having climbed to an all-time high of $1,185.40 in the previous session.

The autocatalyst metal is outrunning other precious metals, with a surge to record highs putting it within a whisker of parity with gold for the first time in 16 years.

Silver slipped 0.1 percent to $14.40 an ounce, while platinum rose 0.2 percent to $848.20 per ounce.

(Reporting by Sumita Layek and Swati Verma in Bengaluru; Editing by Edmund Blair)