Gold rises for first day in seven as traders cover short positions

By Vijaykumar Vedala

BENGALURU (Reuters) - Gold rose for the first session in seven as traders covered short positions, a day after the yellow metal slid to a seven-week low on expectations of an interest rate hike by the U.S. Federal Reserve, possibly next month.

The buying sentiments were also boosted by an easing dollar and a rally in oil prices, ahead of an extended holiday weekend in the United States, analysts said.

Spot gold rose 0.5 percent to $1,229.61 per ounce at 0325 GMT, climbing for the first time since May 17. The metal fell to $1,217.25 on Wednesday, the lowest since April 6.

U.S. gold was up 0.5 percent at $1,229.90.

"Today there has been a little bit of recovery due to short covering and oil prices trading near $50 is also supporting gold," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

Brent oil futures climbed above $50 a barrel on Thursday for the first time in nearly seven months after U.S. government figures showed a sharper-than-expected drawdown in crude stocks last week.

The prospect of an interest rate hike, as indicated by Fed meeting minutes released last week, and a strengthening U.S. dollar have pushed gold down nearly 5 percent so far in May, putting it on track for its biggest monthly decline since November.

Gold is sensitive to interest rates, gains in which raise the opportunity cost of holding the non-interest-yielding asset.

Fed Chair Janet Yellen is due to speak on Friday, and could reinforce expectations that the central bank might raise interest rates as early as next month, or July.

Dallas Fed President Robert Kaplan on Wednesday said he would support raising interest rates in the "near future", though a vote by Britain on whether to leave the European Union will weigh on any Fed rate decision in June.

The dollar index inched down 0.2 percent to 95.157, moving away from a two-month high of 95.661 notched in the previous session.

Among other precious metals, spot silver and spot platinum rose the most in about two weeks, while spot palladium jumped the most in a month.

Investors will be looking for cues from data on the U.S. weekly unemployment and April pending home sales scheduled to be released later in the day.

(Additional reporting by Koustav Samanta in Bengaluru; Editing by Joseph Radford and Christian Schmollinger)