Gold near three-week lows on Fed rate expectations

By Clara Denina

LONDON (Reuters) - Gold dipped on Monday to a near three-week low on expectations the U.S. Federal Reserve will hike interest rates as early as June.

Bullion has been under pressure since the Fed last week released the minutes of its April meeting, which showed officials believe the U.S. economy could be ready for another interest rate increase next month.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said on Friday that conditions for a rate increase are "on the verge of broadly being met".

"The Fed minutes were clearly more hawkish than expected and this has resulted in some change in sentiment and there is now an increased likelihood that they may raise rates in June or July," ABN Amro analyst Georgette Boele said.

Spot gold was down 0.2 percent at $1,248.96 an ounce at 1144 GMT, not far from $1,244 touched last week, the lowest since April 28. U.S. gold futures also dipped 0.2 percent to $1,249.90.

Gold's downside was limited by a lower dollar, which fell against the yen after robust trade data from Japan on Monday, but managed to remain close to its highest in nearly two months against a basket of major currencies, reached last week after the Fed minutes.

A lower dollar makes dollar-denominated assets such as gold more expensive for other currency holders.

"We see gold continuing to work lower over the course of the coming week, as an upward trending dollar should continue to weigh in on prices," said INTL FCStone analyst Edward Meir.

The Fed's policymakers are scheduled to speak this week and are expected to back the case for a rate hike within months. Fed Chair Janet Yellen will be at a panel event hosted by Harvard University on Friday.

"The comments from Yellen will absolutely be a test for the dollar and consequently for gold," ABN Amro's Boele said.

Holdings in the world's largest gold-backed ETF SPDR Gold Trust rose 1 percent to 869.26 tonnes on Friday, the highest since November 2013.

Spot silver dropped 1 percent to $16.35 an ounce, spot platinum was down 0.5 percent at $1,015.12 an ounce and spot palladium fell 1.5 percent to $550 an ounce.

(Additional reporting by Koustav Samanta in Bengaluru, editing by Susan Thomas and William Hardy)