Gold holds near two-month low on firm dollar, talk of U.S. rate hike

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold edged down on Monday, hovering near its lowest in two months on a firmer U.S dollar and speculation of an eventual increase in U.S. interest rates that could hurt the metal's appeal as a hedge against inflation.

After falling nearly 2 percent last week, bullion attracted buying from jewellers in Asia, but the amount was limited and investors stayed on the sidelines. Despite the recent reversals, bullion is still up more than 6 percent this year.

Gold had slipped 0.19 percent to $1,278.34 an ounce by 0333 GMT, not far from a two-month low of $1,273.06 hit last week.

"Sentiment wise, I would call it negative. Every time it can't hold above $1,300, there's some disappointment," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

At a gathering of central bankers in Jackson Hole, Federal Reserve chair Janet Yellen nodded to the concerns of some Fed officials about the sustained level of monetary policy stimulus, even as she stressed the need to move cautiously on raising rate.

"Yellen was talking about a chance for interest rates to rise early. All these factors seem to be negative for gold for the time being. The only positive thing is that we saw some kind of demand at this level," Leung said.

The Fed has said it would wait a "considerable time" after winding down a stimulative bond-buying program in October before raising rates. Financial markets currently expect a rate hike around the middle of next year.

Premiums for gold bars in Hong Kong stood at 70 cents to $1.10 to the spot London prices, higher than 50 to $1.00 quoted late last week because of purchases from jewellers.

U.S. gold was at $1,279.20 an ounce, down $1.00.

Trading had stopped earlier because of a technical glitch.

In other markets, the dollar marched higher against the euro and yen as investors wagered that interest rates were set on a diverging course in the United States, Europe and Japan, giving a lift to Tokyo stocks in the process.

China's planned global gold exchange has signed up more members than targeted, as foreign banks and trading houses seek direct access to the world's top physical gold consumer and to test out reforms allowing them to trade commodities in the yuan currency.

(Editing by Tom Hogue)