Gold rebounds from six-week low but dollar recovery caps gains

By Jan Harvey

London (Reuters) - Gold rose on Monday as prices rebounded from the previous session's six-week low, but remained under pressure as the dollar firmed and buyers remained cautious on the timing of a U.S. interest rate hike.

The metal fell sharply at the end of last week from a peak of $1,215 an ounce on Tuesday after the Federal Reserve indicated that it saw a recent slowdown in the U.S. economy as transitory and did not rule out an interest rate rise this year.

That would lift the opportunity cost of holding gold, while boosting the dollar, in which it is priced. Expectations that the Fed will hike rates for the first time in nearly a decade are holding gold on course for a third straight yearly loss.

Spot gold was up 0.4 percent at $1,182.80 an ounce at 0926 GMT, while U.S. gold futures for June delivery were up $7.60 an ounce at $1,182.10. On Friday spot prices fell to their lowest since March 20 at $1,170.20 an ounce.

"For me, this is a bit of a bounce after the weakness last week," ABN Amro analyst Georgette Boele said. "Overall if we have another weak set of data this week after the GDP last week, that would not be good for the dollar, and in that case I would expect gold prices to go higher."

"Of course, a stronger report would not be good for precious metals, so I think people are a bit cautious this week. I don't think they'll push it up much higher, in case they get caught on the wrong side."

Trading across financial markets was thinned by a UK holiday on Monday, with London markets closed.

The dollar edged higher, staging a modest comeback from a two-week decline on Friday. Investors will be monitoring U.S. economic data due this week, including the key non-farm payrolls report for April due on Friday.

The sluggishness in the economy has led many to believe the Fed won't tighten policy at its June meeting. However, caution prevailed as two top U.S. central bankers said on Friday the Fed could still raise interest rates as soon as June if economic data strengthens.

In the physical markets, gold demand picked up after the metal's sharp losses last week. Premiums on the Shanghai Gold Exchange ticked up to $3-$4 on Monday from about $2 last week.

Among other precious metals, silver was up 1.1 percent at $16.32 an ounce. Platinum was up 0.3 percent at $1,130.24 an ounce, while palladium was up 0.3 percent at $775 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Susan Thomas)