London — Gold edged higher on Monday, taking support from a retreat in the dollar as Italian political risk receded, but the prospect of a further US interest rate rise by the Federal Reserve in June kept a lid on gains.
The metal fell on Friday after stronger than expected US payrolls data shored up the expectation that the Fed would press ahead with another rate increase at its June meeting.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion. They also boost the dollar, in which the metal is priced.
Spot gold was up 0.1% at $1,293.89/oz at 9.52am GMT, while US gold futures for August delivery were 0.1% lower at $1,297.90/oz.
The strength of the interest-rate hiking cycle in the US was outweighing other factors for the moment, Julius Baer analyst Norbert Rucker said.
“Investment demand for gold is just not strong enough to lift the price sustainably,” he said. “Near term the US interest rate hiking cycle is driving prices, and everything that goes along with that — a rising dollar, the interest rate differential with the eurozone.”
The euro eroded some of last month’s hefty losses to climb on Monday as political tension eased in Italy. Stock markets also strengthened as worry over a potential trade war between the US and other major economies was overshadowed by a retreat in political risk in Europe and strong US jobs data.
Finance leaders of the closest US allies vented anger over the Trump administration’s metal import tariffs on Saturday.
Gold has struggled to capitalise on the trade stand-off however as attention shifted to the outlook for US rates. Speculators raised their net long position in Comex gold contracts to the strongest since late April in the week to May 29, at 61,235, US Commodity Futures Trading Commission (CFTC) data showed on Friday. However, gold-backed exchange-traded funds saw outflows later in the week, suggesting investment appetite was softening.
Holdings of the largest gold ETF, US-listed SPDR Gold Shares, fell 10.6 tonnes on Friday, its biggest one-day outflow in nearly four months.
Silver was up 0.5% at $16.44/oz.
Platinum was 0.2% higher at $900.75 and palladium was up 0.6% at $1,005.40/oz.
Money manager short positions, or bets on falling prices, on CME platinum contracts hit record highs in the week to last Tuesday, ING said in a note.
“Open interest continued to rise as prices fell last week suggesting the shorting continues, but at these levels we would soon expect some support from short-covering/profit-taking,” it said.