Gold slips as dollar index climbs to 2018 peak

By Renita D. Young and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold slipped on Monday, snapping three days of gains as the U.S. dollar index strengthened after last week's soft U.S. jobs data did little to dampen optimism about the world's largest economy.

That left traders betting the U.S. Federal Reserve would proceed with lifting interest rates this year. Higher rates typically weigh on gold, as they increase the opportunity cost of holding non-yielding assets such as bullion.

"The dollar in the immediate term is overbought and gold is oversold today. (Gold) needs to recapture $1,322 to increase," said John Caruso, senior commodity strategist at RJO Futures.

Spot gold was down 0.04 percent at $1,314.08 an ounce by 1:36 p.m. EDT (1736 GMT), earlier hitting a one-week high at $1,318.85. U.S. gold futures for June delivery settled down $0.60, or 0.05 percent, at $1,314.10 per ounce.

The market was thinned by a national holiday in Britain, which closed trading desks in London.

"The dollar's strength, driven by a less hawkish European Central Bank and a disparity in bond yields (between the United States and Europe), has kept gold lower today," said TD Securities head of commodity strategy Bart Melek.

Investors were therefore tempering bets on higher gold prices, said Commerzbank analyst Carsten Fritsch, with speculators cutting their net long positions on Comex gold contracts to the lowest since July 2017 with a "massive reduction" in the last few trading weeks.

"Most speculative investors have thrown in the towel already," he said.

Government bond yields in the euro area rose in late Monday trading after the European Central Bank's chief economist, Peter Praet, said an earlier unexpected drop in euro zone core inflation may be a one-off.

Initially dropping, bond yields in the single currency bloc rose after his remarks.

The U.S. dollar index hit a 2018 peak against a commodity basket after U.S. jobs and wages data did little to alter perceptions of strength in the U.S. economy and consequently expectations for more Fed rate hikes.

Meanwhile, silver lost 0.1 percent to $16.47 an ounce. Palladium was up 0.1 percent at $967.97 an ounce, earlier hitting its highest level since April 27 at $980.

Platinum gained 0.7 percent to $911.90 an ounce, having earlier hit its highest price since April 25 at $918.70. Friday's positioning data from the CFTC suggests the metal may be due for a bounce, analysts said.

"With prices near the bottom of the recent one-year range, platinum is now in the oversold box," Societe Generale said in a note.

(Reporting by Renita D. Young in New York and Jan Harvey in London; Additional reporting by Apeksha Nair in Bengaluru; Editing by Adrian Croft and Matthew Lewis)