Gold rises on retreating dollar, lower equities

By Clara Denina

LONDON (Reuters) - Gold edged up on Monday, as European equities fell and the dollar slipped from a 14-year peak, but expectations of tighter U.S. monetary policy kept a lid on price gains.

Spot gold edged up 0.4 percent to $1,137.93 an ounce by 1155 GMT. It touched $1,122.35, its weakest since Feb. 2, on Thursday, under pressure from a stronger dollar after the Federal Reserve's hawkish interest rate forecasts on Wednesday.

U.S. gold futures gained $3.60 to $1,141 an ounce.

The Fed hiked rates for the first time in a year last week and projected three more increases in 2017, up from the two projected in September.

"The Fed Chair Yellen braced for three interest rate rises next year. This, coming at a time when investors are mindful of the stimulus effects of the new incoming U.S. regime is likely to be good for equity valuation and weigh on gold and risk-off assets, at least in the short term," Mitsubishi Corp strategist Jonathan Butler said.

The dollar was down 0.1 percent against a basket of six main currencies, making dollar-denominated gold cheaper for holders of other currencies.

Richmond Fed President Jeffrey Lacker said on Friday the Fed will likely need to raise interest rates more than three times next year and faces challenges in gradually cooling off the U.S. economy.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

"I won't be surprised if gold prices move down to $1,050 to $1,080 by the start of next year," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Spot gold may bounce moderately to $1,153 per ounce as it has found a support at $1,121, according to Wang Tao, Reuters analyst for commodities technicals.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.63 percent to 836.99 tonnes on Friday. Holdings are down over 11 percent since November. [GOL/ETF]

"(The fall in ETF holdings) illustrates the view investors are moving away from gold at least for the medium term," Wing Fung's To said.

Hedge funds and money managers cut their net long position in COMEX gold contracts for the fifth straight week, taking it to a 10-month low in the week to Dec. 13, U.S. Commodity Futures Trading Commission data showed on Friday.

Silver fell 0.3 percent to $16.04 an ounce.

Platinum fell 1.3 percent to $918.40.

Palladium was down 2.1 percent at $680.40 an ounce, after falling to a one-month low on Friday.

(Additional reporting by Swati Verma in Bengaluru; Editing by Susan Thomas)