Trump trouble extends gold's gains

By Peter Hobson

(Reuters) - Gold extended its biggest weekly gain in five weeks as a weaker U.S. dollar and political turmoil in the United States fuelled demand for bullion as a safe haven and reduced expectations of rapid U.S. interest rate rises.

Spot gold rose 0.2 percent to $1,257.93 an ounce by 1221 GMT on Monday, while U.S. gold futures gained 0.3 percent to $1,257.90.

The metal advanced by 2.2 percent last week as the furore over U.S. President Donald Trump's alleged links to Russia and his firing of former FBI chief James Comey raised concerns about his ability to push through promised fiscal stimulus.

That caused a rush to safe-haven assets such as gold and drove U.S. stocks, the dollar and U.S. bond yields lower, reducing the opportunity cost of holding non-yielding bullion and making gold cheaper for holders of other currencies.

Stocks and bond yields have recouped some losses, but the dollar touched a six-month low on Monday.

Gold investors were looking to news from Washington, said Commerzbank analyst Carsten Fritsch.

"If this escalates further and impeachment claims intensify, Trump will find it very difficult to push forward his ambitious tax cut and infrastructure spending plans," Fritsch told the Reuters Global Gold Forum on Monday.

INTL FCStone analyst Edward Meir said: "This should be bullish for gold since it should keep the (U.S.) Federal Reserve more dovish on the rate front for a little while longer."

Higher interest rates would pressure gold prices because they raise bond yields and tend to boost the dollar.

St. Louis Federal Reserve President James Bullard said on Friday that expected rate increases may be too fast for an economy that has shown recent signs of weakness.

However, Julius Baer analyst Carsten Menke believes that a June rate rise remains highly likely.

"(As a result) we expect the dollar to strengthen again and that should cap the upside to gold from here," he said, adding that the metal is likely to dip to $1,200 over the next three months.

Investors' net long positions in COMEX gold, meanwhile, have fallen to a two-month low, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

In other precious metals, silver was up 1.1 percent at $17 an ounce, having touched $17.13, its highest since May 1.

Platinum tose 0.2 percent to $940.20 and palladium was flat at $759.70.

(Additional reporting by Vijaykumar Vedala in Bengaluru; Editing by David Goodman)