Gold gains as dollar slips, stimulus outlook eyed

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold climbed on Monday on a weaker U.S. dollar after Lawrence Summers withdrew as a candidate to head the Federal Reserve, but the metal was still trading near its five-week low on concerns over the outlook for Fed stimulus.

Summers, a former top aide to President Barack Obama, withdrew from consideration to succeed Fed Chairman Ben Bernanke, after liberal pressure soured his confirmation prospects.

Markets viewed Summers' move as leaving Fed number two Janet Yellen the favourite to take the chairmanship.

"The rally (in gold) this morning is because of Summers. Yellen is perceived to be more dovish than Summers," said Barnabas Gan, an analyst at OCBC Bank in Singapore.

"It seems that there may be more resistance in faster tapering of the QE program if Yellen becomes the chairman," Gan said, referring to the Fed's quantitative easing program.

The U.S. dollar fell to a near four-week low against a basket of major currencies.

The Fed's stimulus measures, including its $85 billion monthly bond purchases, have boosted gold's appeal as a hedge against inflation over the last few years, sending prices to new highs.

The U.S. central bank is widely expected to begin tapering the pace of bond buying this month on the back of strong economic data. Gold has fallen about 20 percent this year on tapering fears.

Investors are monitoring the bank's two-day policy meeting from Tuesday for clues on the timing and outlook of the stimulus measures.

Spot gold rose 0.4 percent to $1,331.36 an ounce by 0300 GMT, after recording its largest weekly loss since late June.

Poor technical momentum, easing tensions with Syria and expectations that the U.S. central bank would unwind its monetary stimulus sent the metal to a five-week low on Friday.

INVESTOR SENTIMENT BEARISH

Monday's gains in safe-haven gold were capped by easing geopolitical tensions in Syria. The United States agreed to call off military action against Syria under a deal with Russia to remove President Bashar al-Assad's chemical weapons stockpile.

Hedge funds and money managers slashed bullish bets in futures and options of the U.S. gold markets for the first time in 5 weeks, pressured by easing tensions over Syria and expectations that the Fed will begin to unwind its monetary stimulus, a weekly report by the Commodity Futures Trading Commission showed on Friday.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.66 percent to 911.12 tonnes on Friday -- its biggest decline since August 1.

(Reporting by A. Ananthalakshmi; Editing by Richard Pullin)