Gold holds near 1-month peak as dollar, stock markets soften

By Jan Harvey and Ethan Lou

(Reuters) - Gold held near its highest in a month on Monday in holiday-thinned trade, with a softer dollar and a retreat in stock markets helping the metal cling on to the previous session's gains.

Gold hit its highest level since May 1 on Friday at $1,269.50 an ounce, as nervousness over U.S. President Donald Trump's negotiations with other world leaders at the G7 summit prompted investors to buy bullion as an alternative to nominally higher-risk assets such as shares.

Spot gold settled at $1,266.67 an ounce, little changed from $1,266.66 late on Friday. U.S. gold futures for June delivery down 0.1 percent at $1,266.50.

Moves were muted, with traders in the United States, Britain and China all out for national holidays.

"Potential for prices is limited right now, but with the news from the G7 meeting and the weaker dollar, the gold price has gone up," said LBBW analyst Thorsten Proettel.

Pointing to bruising meetings of Group of Seven nations and NATO last week, German Chancellor Angela Merkel said on Sunday Europe can no longer completely rely on its allies.

Under pressure from the G7, Trump on Saturday backed a pledge to fight protectionism but refused to endorse a global accord on climate change, saying he needed more time to decide.

The market is also awaiting next month's Federal Open Market Committee meeting for any clues on the U.S. Federal Reserve's stance on interest rate increases.

Gold is highly sensitive to rising U.S. rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"Market participants will presumably be casting an eye over the labour market report in the U.S. this week," Commerzbank said in a note. "If the data turn out to be positive, there is probably nothing to prevent the (Fed) implementing its next rate hike in mid-June."

Hedge funds and other money managers increased their net long position in COMEX gold for the first time in four weeks in the week to May 23, U.S. Commodity Futures Trading Commission data showed.

Concerns over Italy's banks and Britain's national election campaign dominated European financial markets on Monday, prodding stock markets lower in muted trade.

In other precious metals, silver was up 0.1 percent at $17.37 an ounce, having touched a one-month high of $17.41.

Platinum was 0.6 percent lower at $950, while palladium was up 0.9 percent at $797, after hitting a near two-week peak of $800.90.

(Reporting by Ethan Lou in Calgary, Alberta, Jan Harvey in London and Vijaykumar Vedala in Bengaluru; Editing by David Evans and Sandra Maler)