Gold hits three-week high on fading U.S. rate hike prospects

By Vijaykumar Vedala

BENGALURU (Reuters) - Gold hit a fresh three-week high on Thursday, after jumping 1.5 percent overnight, helped by a weaker dollar and diminishing expectations of an early interest rate hike by the U.S. Federal Reserve.

The safe haven asset has risen by about 1.5 percent this week so far, boosted by disappointing U.S. non-farm payroll data and Fed chair Janet Yellen's cautious comments on Monday.

Spot gold was nearly flat at $1,262 an ounce by 0651 GMT, having hit a high of $1,266.01 earlier in the session, its best since May 18. U.S. gold rose 0.2 percent to $1,264.90.

"While there is likely further room to the upside for gold, there may be some road blocks to the rally near term. We expect that as the FOMC (Federal Open Market Committee) approaches trading volume may quieten down and some near term traders will book square and take profits," HSBC analyst James Steel said in a note.

"We suspect net long positions have increased significantly and this should be partly reflected in the next set of Commitments of Traders data. This may restrain further purchases and may even trigger profit taking."

The yellow metal has risen 19 percent so far this year and the rally has allowed bullion miners like Barrick Gold among others to eye expansion and study new ways to increase production for the first time in five years.

Russia produced 67.75 tonnes of gold in January-April 2016, up from 63.27 tonnes in the same period last year, the finance ministry said in a statement on Wednesday.

"I think gold is going to stay range bound until we see more confirmation. We need more confirmation from labour market data in the U.S. that we get in a month from now. The market wants to see at least two data points," said Dominic Schnider of UBS Wealth Management in Hong Kong.

"There's lot of uncertainty. That uncertainty needs to be priced out. Do we see that happen in the second half? Yes. But for the time being it's a wait and see game," he added.

The dollar index inched 0.1 percent lower to 93.531, after plumbing to a five-week low of 93.425 on Wednesday.

Among other precious metals, spot silver hit a fresh three-week high on Thursday after climbing nearly 4 percent in the prior session, its biggest one-day gain since April 19. Silver rose 1 percent to $17.20 per ounce.

Spot platinum and spot palladium were flat at $1,005.50 and $559.98 an ounce respectively.

(Reporting by Vijaykumar Vedala in Bengaluru; Editing by Richard Pullin and Michael Perry)