Gold turns up from near five-week low as dollar eases

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold rebounded from a near five-week low as the dollar dropped on Monday, shrugging off earlier pressure by top Federal Reserve officials' comments fuelling speculation that U.S. interest rates would rise sooner rather than later.

Speaking at a meeting of leading central bankers in Jackson Hole, Wyoming, Fed Chair Janet Yellen said on Friday that an improvement in the economy had boosted the case for another rate rise, while Vice Chair Stanley Fischer said the U.S. central bank was still on track to lift rates this year. [FRX/]

The CME Group's FedWatch tool showed the market pricing in more than a 30 percent chance of a hike in September, up from 18 percent before Yellen and her deputy Fischer spoke.

Spot gold touched its lowest since July 26 at $1,314.70, and was up 0.3 percent at $1,324.41 an ounce by 2:49 p.m. EDT (1849 GMT), after falling for the past six sessions straight.

U.S. gold futures for December delivery settled up 0.09 percent at $1,327.10.

"Precious metals prices still remain under pressure from the incumbent rate hike but a weaker U.S. dollar is giving them a new sign of life for the time being," said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.

Gold's volatility tracked fluctuations in the dollar. The U.S. currency gave up gains soon after Yellen spoke as she gave no indication that a rate hike was imminent, but rebounded as traders reassessed her words, and after Fischer spoke. [FRX/]

Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"Weakness in gold prices is likely to extend over the next weeks, and we expect gold to steadily slide to $1,270 and below," Pradeep Unni, head of trading and research at Richcomm Global Services, said.

"The case for a September rate hike seems to have clearly increased and most economic data feeds are showing improvements," he said.

Hedge funds and money managers increased their net long position in COMEX gold contracts in the week to Aug. 23, U.S. Commodity Futures Trading Commission data showed on Friday.

Silver was rose 1.2 percent at $18.84 an ounce, having earlier touched its lowest in more than eight weeks at $18.36 an ounce.

Platinum, the biggest faller among the major precious metals last week, was up 1.1 percent at $1,079.20, while palladium was up 1.5 percent at $695.60.

(Additional reporting by Koustav Samanta in Bengaluru; Editing by Marguerita Choy and Louise Heavens)