Gold inches higher on weaker dollar, Asian buying

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold edged up on Monday on buying interest from Asia and as the dollar retreated, but gains were kept in check by stronger equities that dulled the metal's safe-haven appeal.

Strength in oil prices also supported bullion, but gains in gold could be difficult to hold due to expectations of higher U.S. interest rates and a strong outlook for the dollar.

"The bullion market faces tough upside resistance and further gains may be an uphill battle," said HSBC analyst James Steel.

"A strong U.S. dollar and the likelihood of higher U.S. rates even if inflation remains subdued are a recipe for lower gold prices."

Spot gold had edged up 0.4 percent to $1,199.86 an ounce by 0759 GMT, after losing about 2 percent last week.

Bullion was well-bid as the dollar index, a measure of the greenback's strength against a basket of major currencies, eased on Monday after three straight days of gains. A weaker dollar makes gold cheaper for holders of other currencies.

Also helping was a rise in oil prices, which were boosted by expectations that Brent crude futures would likely remain above $60 for the rest of the year.

Investors believe higher oil prices could boost demand for gold, seen as a hedge against oil-led inflation.

Gold got some early support from buying in top gold consumer China, where local prices were at a premium of about $3 an ounce to the global benchmark, though they slipped later in the session to about $1.

Pressure on prices could also come from speculation over the timing of an interest rate hike in the United States.

The Federal Reserve, after wrapping up a two-day meeting last Wednesday, signalled it was on track to increase rates next year but said it was taking a patient stance, keeping gold's losses in check.

Higher interest rates would boost the dollar and hurt non-interest-bearing bullion, which was boosted by central bank liquidity and a low interest rate environment in the years following the 2008 financial crisis.

Trading activity was likely to be thin this week and next, with many investors away for Christmas and the run-up to the New Year's holiday.

"Given that we are in the thick of the festive season, traders are likely to let gold prices drift within a range in the coming week," said Howie Lee, an analyst at Phillip Futures, adding that gold could trade in the $1,180-$1,210 range.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)