Gold gains as traders cover short positions

By Vijaykumar Vedala

BENGALURU (Reuters) - Gold logged its biggest intraday percentage gain in more than a week as traders covered short positions, a day after the yellow metal slid to a seven-week low on expectations the U.S. Federal Reserve would increase rates as early as June.

A rally in oil prices and falling dollar also boosted sentiment, ahead of an extended holiday weekend in the United States, analysts said.

Spot gold rose 0.4 percent to $1,228.95 per ounce at 0648 GMT, its biggest intraday rise since May 17. The metal fell to $1,217.25 on Wednesday, the lowest since April 6.

U.S. gold was up 0.5 percent at $1,229.50.

Spot palladium jumped the most in more than a month, rising about 3 percent to $542.22 per ounce. It touched a high of $545.04 earlier in the session.

"Today there has been a little bit of recovery due to short covering and oil prices trading near $50 is also supporting gold," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

Brent oil futures climbed above $50 a barrel on Thursday for the first time in nearly seven months, boosted after U.S. government figures showed a sharper-than-expected drawdown in crude stocks last week.

The prospect of an interest rate hike, as indicated by Fed meeting minutes released last week, and a strengthening U.S. dollar have pushed gold down 5 percent so far in May, putting it on track for its biggest monthly decline since November.

Gold is sensitive to interest rates, raising the opportunity cost of holding the non-interest yielding asset.

Fed Chair Janet Yellen is due to speak on Friday, and could reinforce expectations that the central bank might raise interest rates as early as next month, or July.

Dallas Fed President Robert Kaplan on Wednesday said he would support raising interest rates in the "near future", though a vote by Britain on whether to leave the European Union will weigh on any Fed rate decision in June.

The dollar index inched down 0.1 percent to 95.226, moving away from a two-month high of 95.661 notched in the previous session.

Among other precious metals, spot silver and spot platinum rose the most in about two weeks.

Investors will be looking for cues from U.S. weekly unemployment data and pending April home sales figures, scheduled for later in the day.

(Additional reporting by Koustav Samanta in Bengaluru; Editing by Christian Schmollinger and Biju Dwarakanath)