Gold climbed 1 percent on Monday as a dip in the dollar sparked a rally from the previous session's six-week low, though caution over the timing of a US interest rate hike kept prices hemmed within a narrow range. Silver also jumped, to its highest level in nearly four weeks, as the dollar index gave up early gains to fall 0.1 percent. Trading across financial markets was thinned by a UK holiday on Monday, with London markets closed.
Spot gold was up 0.9 percent at $1,188.30 an ounce at 1346 GMT, off a high of $1,192, while US gold futures for June delivery were up $13.10 an ounce at $1,187.60. On Friday, spot prices fell to their lowest since March 20 at $1,170.20 an ounce after the Federal Reserve indicated that it saw a recent slowdown in the US economy as transitory and did not rule out an interest rate rise this year.
A rate rise - the first in nearly a decade - would lift the opportunity cost of holding gold, while boosting the dollar, in which it is priced. Investors will be monitoring US economic data due this week, including the key non-farm payrolls report for April due on Friday, for their impact on the dollar and interest rate expectations. "Basically since November, gold has more or less been trading sideways," Julius Baer analyst Carsten Menke said. "(US data) is likely to cause some more volatility, especially the labour market report on Friday. The gold market is going to watch closely what's happening with the economy in the States, and ultimately then what the Fed is going to do."
The sluggishness in the economy has led many to believe the Fed will not tighten policy at its June meeting. However, caution prevailed as two top US central bankers said on Friday the Fed could still raise interest rates as soon as June if economic data strengthens. "If we have another weak set of data this week ... I would expect gold prices to go higher," ABN Amro analyst Georgette Boele said. "Of course, a stronger (US payrolls) report would not be good for precious metals, so I think people are a bit cautious this week."
In the physical markets, gold demand picked up after the metal's sharp losses last week. Premiums on the Shanghai Gold Exchange ticked up to $3-$4 on Monday from about $2 last week. Among other precious metals, silver was up 2.8 percent at $16.60 an ounce. Platinum was up 0.9 percent at $1,137.32 an ounce, while palladium was up 0.2 percent at $773.47 an ounce.
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