Gold hits 3-month high as traders bet on U.S. rate hike delay

By Jan Harvey

LONDON (Reuters) - Gold rose to its highest level since early July on Monday as expectations that the Federal Reserve will postpone an expected U.S. interest rate hike beyond the end of the year pressured the dollar to three-week lows against a currency basket.

The dollar index was down 0.1 percent on the day, stung by doubts that U.S. rates will rise this year.

Spot gold reached a peak of $1,169.00 an ounce and was up 0.6 percent at $1,163.96 an ounce at 1401 GMT, while U.S. gold futures for December delivery were up $8.4 an ounce at $1,164.50.

Bets that U.S. rates would rise this year, increasing the opportunity cost of holding gold while lifting the dollar, pushed gold prices to 5-1/2 year lows in July.

However, mixed U.S. economic data and fears that a broader global economic slowdown would affect U.S. growth have since dampened those expectations. Prices are now little changed in the year to date.

"The idea in the market that the Fed will lift interest rates this year is out of the market," LBBW analyst Thorsten Proettel said. "People aren't expecting an interest rate hike this year, with the bad jobs data from the United States, and the problems in China."

"That burden is out of the market."

Fed policymakers could still raise rates this year but that is "an expectation, not a commitment", and could change if the global economy pushes the U.S. economy further off course, Fed Vice Chairman Stanley Fischer said over the weekend.

Hedge funds and money managers raised their bullish bets in COMEX gold and silver to four-month highs in the week ended Oct. 6, data showed on Friday, amid expectations the Fed will delay a much-anticipated rate hike.

"From the currency side and also from the positioning side, the gold price is getting some support," said Julius Baer analyst Carsten Menke. "The technical picture is improving, so that might lure some more short-term bullish positioning back into the market."

In South Africa, the Association of Mineworkers and Construction Union voted on Sunday to strike at the operations of AngloGold Ashanti, Harmony Gold and Sibanye Gold.

Silver was up 0.7 percent at $15.93 an ounce, while platinum was up 1.3 percent at $991 an ounce. Palladium was down 0.5 percent at $704.

(Additional reporting by A. Ananthalakshmi in Singapore and Maytaal Angel in London.; Editing by William Hardy and Pravin Char)