Gold price hits 3-1/2 month low on dollar strength after Yellen

London (May 30)  Gold fell below $1,200 for the first time since mid-February on Monday, as comments from Federal Reserve chief Janet Yellen on the likelihood of higher U.S. interest rates sent the dollar to two-month highs.

The Fed should increase interest rates "in the coming months" if the economy picks up as expected and jobs continue to be generated, Yellen said on Friday, bolstering the case for a rate hike in June or July.

St. Louis Fed President James Bullard said on Monday that global markets appear to be "well-prepared" for a summer rate hike, although he did not specify a date for the policy move.

An increase in rates would raise the opportunity cost of holding gold, which does not earn interest. It would also bolster the dollar, making gold more expensive for other currency holders.

Gold fell as much as 1.1 percent to $1,199.60 an ounce, its lowest since Feb. 17, and was down 0.6 percent at $1,204.18 an ounce by 0853 GMT. The metal was on track for nine sessions of losses, its longest losing streak of since March 2015.

Trade was thinning out with public holidays in Britain and the United States on Monday.

"The (next technical) support is at $1,185 and a break of this level will open the floor towards the $1,160 mark," said Naeem Aslam, chief market analyst at Think Forex UK.

"Money managers are reducing their bullish bets and ...hedge funds are strongly bullish on the dollar... the momentum chase trade (in gold) is dissipating."

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Gold's losses were due to a stronger dollar and one-month highs in European shares, which showed increased risk appetite among investors.

"Much will depend on what the dollar will do on Tuesday when all markets resume trading," INTL FCStone analyst Edward Meir said in a note.

Bullion, which had risen 16 percent in the first quarter, has been under pressure since the prospect of an imminent rate hike was indicated by the Fed's April meeting minutes, which were released earlier this month. Key central bank officials have consistently supported an increase.

Investors will now monitor the all-important U.S. non-farm payrolls for May, due on Friday, and a solid reading could heighten expectations for a June rate rise.

"Traders have lost their interest... (as) Yellen's comment strengthened the view that the Fed will increase the interest rate this year," Aslam said.

Among other precious metals, spot silver and spot platinum touched seven-week lows.

Silver was down 2.1 percent at $15.88 per ounce, while platinum fell 0.4 percent to $968.10 and palladium was unchanged at $537.05 per ounce.

Source: CNBC