Gold hits 5-1/2 month low on strong dollar, Treasury yields

By Clara Denina

LONDON (Reuters) - Gold fell more than one percent to a 5-1/2-month low on Monday, as the dollar and Treasury yields strengthened on expectations that President-elect Donald Trump will boost U.S. spending.

"Gold is suffering from an irrational dollar rally on expectations Trump's fiscal policies will boost spending and therefore inflation, which could lead to higher U.S. interest rates," said ActivTrades chief analyst Carlo Alberto de Casa.

"However, uncertainty about the U.S. economic outlook and also about international risk events such as the Austrian presidential election and the Italian constitutional referendum next month could have an impact on wider markets and impact gold's trading in the medium term."

Spot gold hit its lowest since June 3 at $1,211.08 an ounce and was down 1.1 percent at $1,211.79 by 1519 GMT.

U.S. gold futures were also down 1.1 percent at $1,210.40 an ounce.

The dollar rose to an 11-month high against a basket of major currencies, while yields on the U.S. 10-year Treasury notes climbed to their highest since December 2015 at 2.3 percent.

Surging bond yields and a broad sell-off in commodities in the previous session, saw the metal dip nearly 3 percent.

Gold had rallied 5 percent, while copper surged to multi-month highs on Wednesday when Trump emerged as the election winner.

"Once we get over this period of exuberance in risk assets, we will realise that the Fed are likely to raise rates this year," said Mitsubishi Corp analyst Jonathan Butler.

The market is now betting on the Federal Reserve raising interest rates more quickly.

Higher U.S. interest rates could lift the opportunity cost of holding non-interest-bearing gold.

Fed Vice Chair Stanley Fischer said on Friday that U.S. economic growth prospects appeared strong enough for the Fed to proceed with a gradual increase in interest rates.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.76 percent to 934.56 tonnes on Friday.

Silver fell 3.3 percent to its lowest since June at $16.75 an ounce, tracking gold's downside.

Platinum was down 1.3 percent at $928, while palladium rose 1.8 percent to $682.22 an ounce.

(Additional reporting by Apeksha Nair in Bengaluru; Editing by David Evans and Adrian Croft)