Gold gains ground but still set for biggest decline in six months

By Marcy Nicholson and Clara Denina

NEW YORK/LONDON (Reuters) - Gold rose 1 percent on Tuesday, rebounding from the prior session's three-and-a-half-month low, but remained on track for its biggest monthly decline since November on dollar strength and growing expectations of an imminent U.S. interest rate hike.

Spot gold was up 1 percent at $1,216.80 an ounce at 2:38 p.m. EDT (1838 GMT), after Monday's fall to its lowest since Feb. 17 at $1,199.60. It was on track to close May down 5.9 percent.

U.S. gold futures for August delivery settled up 80 cents at $1,217.50 an ounce.

U.S. consumer spending rose by the most in more than six years in April as households stepped up purchases of automobiles, suggesting an acceleration in economic growth.

"The better spending number will leave Q2 tracking higher, but the lack of acceleration in core PCE (inflation) means that there's no rush for the Fed to hike as early as June," said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto.

An increase in U.S. rates would raise the opportunity cost of holding gold, which does not earn interest. It would also bolster the dollar, making gold more expensive for buyers in other currencies.

Gold has been under pressure since release of the minutes from the Federal Reserve's April meeting boosted expectations of an imminent rate rise.

"If you get a pick-up in growth expectations in the U.S. and aggressive rate hikes from the Fed, then you could revisit the low of the year (at $1,127.80), but I see that as an unlikely scenario," ABN Amro analyst Georgette Boele said, adding the next support level is the 200-day moving average of $1,163.

Spot silver was headed for its biggest monthly loss since September 2014, down more than 10 percent. It touched a seven-week low in the previous session before recovering to $16.06 on Tuesday.

U.S stocks were flat to lower while the dollar was firm, hovering below its highest in two months against a basket of currencies.

Investors will monitor May U.S. private-sector ISM manufacturing data, due on Wednesday, and nonfarm payrolls on Friday. Solid readings could heighten expectations for a move as early as the Fed's June 14-15 policy meeting.

Spot platinum rose 1.4 percent to $976.99 an ounce, having hit its lowest in seven weeks in the previous session.

Spot palladium gained 0.8 percent to $543.81 but was still heading for its biggest monthly loss since November.

(Additional reporting by Vijaykumar Vedala in Bengaluru; Editing by Susan Thomas and James Dalgleish)