Gold gains on dollar weakness; U.S. labour data in focus

By Clara Denina

LONDON (Reuters) - Gold inched up on Thursday as the dollar touched a two-week low against the yen and investors awaited U.S. labour data to assess whether this will boost the prospect of an early interest rate rise by the Federal Reserve.

Investors looked to the U.S. May ADP private employment report due later in the day and, most importantly, non-farm payrolls on Friday. Solid readings could heighten expectations for a move as early as the Fed's June 14-15 policy meeting. [ECONUS]

"People are looking for confirmation whether the likelihood of a summer rate hike is going to increase even further," Julius Baer analyst Carsten Menke said.

"As long as fears of a summer rate hike are kept alive by the incoming macro data, the odds are much higher that speculators move away from the long side in the gold market."

Spot gold was up 0.4 percent at $1,216.61 an ounce by 1154 GMT. U.S. gold gained 0.3 percent to $1,218.40.

Bullion had turned negative on Wednesday after data showed U.S. manufacturing activity expanded for a third straight month in May.

The dollar fell 0.1 percent against a basket of six major currencies, making gold cheaper for foreign currency holders.

Gold has taken a beating after the latest U.S. Fed meeting minutes released in May, and comments from key central bank officials, including Chair Janet Yellen, boosted expectations of an imminent U.S. rate rise.

Higher interest rates increase the opportunity cost of holding non-interest yielding gold, while bolstering the dollar.

The market was also focused on the European Central Bank (ECB), which left rates unchanged at record levels, as expected, ahead of the 1230 GMT news conference, where President Mario Draghi should detail the bank's new growth and inflation projections.

Spot gold is biased to revisit its May 30 low of $1,199.60 per ounce, as it has failed to break a resistance at $1,219, Reuters technical analyst Wang Tao said.

"Before Fed's July conference, gold will touch a new bottom of perhaps $1,130-1,140 in the following one and a half months," said Jiang Shu, chief analyst at Shandong Gold Group, the parent of Shandong Gold Mining Co Ltd.

"Overall though, because prices have been higher in the first half of the year, the second half may not be as good for gold long investors," Shu added.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.24 percent to 870.74 tonnes on Wednesday, the highest since November 2013.

Among other precious metals, spot silver rose 0.6 percent to $16.03 per ounce, after slipping to $15.77 on Wednesday, its lowest since April 12. Spot platinum was up 0.6 percent at $972.40, while palladium fell 0.4 percent to $542.72.

(Additional reporting by Koustav Samanta in Bengaluru; Editing by Mark Heinrich)