Gold slips on firm dollar; market focuses on U.S. debate outcome

By Swati Verma

BENGALURU (Reuters) - Gold prices edged lower on Monday as the dollar firmed, though the market is focused on the outcome of the U.S. presidential debate later in the day, that could see investors buying more of the metal as a hedge against financial uncertainty.

Spot gold slipped 0.1 percent to $1,336 an ounce at 0719 GMT. U.S. gold futures slid 0.2 percent to $1,339.9 an ounce.

"If Trump is perceived to have an improved probability of winning the Presidential race, that is likely to be supportive of the gold prices, so we could see (gold) prices rallying in the short term amid higher volatility," said NAB analyst Vyanne Lai.

The first U.S. presidential debate between Republican Donald Trump and Democrat Hillary Clinton will take place at 0100 GMT on Tuesday, with investors looking for indications of who could win the race to lead the world's biggest economy.

"With Trump closing the gap with Clinton, the uncertainty is likely to keep gold underpinned," said Alex Thorndike, senior precious metals dealer, MKS PAMP Group.

The dollar index, which measures the greenback against six major currencies, was up 0.05 percent at 95.521.

"We expect gold to continue to hold its recent $1,330 - $1,340 range in the lead up to the presidential debate," MKS PAMP Group trader Sam Laughlin said in a separate note.

Boston Federal Reserve President Eric Rosengren said on Friday that he believed interest rates should be raised gradually now and warned that a fall in the unemployment rate below its sustainable level could derail economic recovery in the United States.

The split at the Federal Reserve over when to next raise interest rates appears to hinge largely on disagreements over the labour market outlook, comments from policymakers on Friday suggest.

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.

Speculators cut their net-long position in COMEX gold futures for the second straight week in the week to Sept. 20, U.S. Commodity Futures Trading Commission data showed.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.03 percent to 951.22 tonnes on Friday.

Silver fell 0.6 percent to $19.53 an ounce, after dropping nearly 1 percent in the previous session.

Platinum was down nearly 1 percent at $1,041 and palladium fell 1 percent to $694 per ounce.

(Reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Christian Schmollinger and Sherry Jacob-Phillips)