Gold gains for second day on dollar decline, bargain hunting

By Zandi Shabalala

LONDON (Reuters) - Gold rose on Tuesday, climbing further away from last week's 5-1/2-month lows on short-covering as the dollar weakened and physical buying in Asia supported prices.

Donald Trump's U.S. presidential election victory initially saw a flight to safe-haven assets such as gold but the run reversed as the dollar and bond yields surged on expectations of higher U.S. spending and interest rates.

Spot gold was up 0.2 percent at $1,216.60 an ounce by 1232 GMT, though analysts saw the gains as short-lived. The previous day, bullion advanced 0.4 percent to snap three sessions of losses.

U.S. gold futures were up 0.5 percent at $1,216.20 per ounce, after rising as high as $1,220.90.

"We see this as a short-covering rally rather than a fundamental change," said ING's head of commodities strategy Hamza Khan, adding that a rise in equities and the dollar were signs of sustained pressure on gold in the medium term.

Recent gold lows had spurred physical buying by bargain hunters, Khan said, but this could establish a floor for bullion rather than push it higher.

"Right now we are just not sure where that floor is," he said.

Gold has fallen more than $100 an ounce from its post-election peak on Nov. 9 as U.S. Treasury yields posted their biggest two-week rise in more than five years and the dollar shot higher.

But the dollar weakened on Tuesday, supporting bullion.

The dollar index, which measures the greenback against a basket of main currencies, fell from a 13-1/2-year high, down 0.1 percent after snapping a 10-day rising streak on Monday. [USD/]

The expected rise in U.S. interest rates in December is also preventing gold from gaining further, traders said.

"Gold kept its head above water, with technical-based buying supporting the market. However, with the market increasing bets on a December rate hike in the U.S., this buying is unlikely to persist in the short term," ANZ analysts said in a note.

Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding assets such as bullion.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings fell 0.71 percent to 908.77 tonnes on Monday. Holdings have fallen 3.6 percent so far this month. [GOL/ETF]

Silver rose 1.2 percent to $16.79 an ounce and platinum was 0.8 percent higher at $942.50.

Palladium was up 0.7 percent at $733.48, after touching its strongest since Aug. 10 at $742.20.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by Dale Hudson and David Evans)