June 1, 2016 / 10:30 AM / 2 years ago

PRECIOUS-Gold turns negative as dollar cuts losses after U.S. data

* Dollar steps further back from 2-month highs
    * Fed's beige book points to slight rise in inflation

 (Updates prices; adds comment, byline, NEW YORK dateline)
    By Marcy Nicholson and Veronica Brown
    NEW YORK/LONDON, June 1 (Reuters) - Gold turned negative on
Wednesday, as the dollar briefly pared losses following U.S.
manufacturing data and U.S. equities came off their lows, while
the market tried to assess how close the Federal Reserve is to
raising interest rates.
    Data showed U.S. manufacturing activity expanded for a third
straight month in May, but growth in new orders slowed further
as factories grappled with sluggish overseas demand and weak
capital spending in the energy sector. 
    Spot gold was down 0.4 percent at $1,210.31 an ounce
by 2:50 p.m. EDT (1850 GMT), falling for the tenth out of the
last 11 sessions. Gold shed around 6 percent in May, its biggest
decline in six months.
    U.S. futures for August delivery settled down 0.2
percent at $1,214.70 an ounce.
    "There is increasing expectation that there will be a (U.S.)
rate hike by July and that has weighed on sentiment," ETF
Securities analyst Nitesh Shah said.
    "In the short term, the rate hike will be dollar positive
and gold-price negative." 
    Later on Wednesday, the Fed's Beige Book report pointed to
rising labor costs, potentially making policymakers more
comfortable that inflation is on track to rise to the central
bank's 2 percent target. 
    Higher U.S. rates would raise the opportunity cost of
holding gold, and lift the dollar, making gold more expensive
for buyers in other currencies.
    The U.S. dollar hit its lowest level in two weeks against
the yen but pared losses against the euro, yen, and Swiss franc
after the U.S. manufacturing data. 
    "Gold should have rallied with the dollar selling off," said
Phillip Streible, senior commodities broker for RJO Futures in
    "If we can't rally off the bullish news, we've got a patient
on life support."
    Bullion has climbed nearly 15 percent so far this year, but
buckled after minutes from the Fed's April meeting boosted
expectations for monetary tightening.
    Analysts said further losses were possible, exposing
psychological support at $1,200. 
    "Gold is likely to continue its outperformance relative to
silver for the time being but we still think it's too early to
'buy the dip' outright, particularly ahead of Friday's deluge of
U.S. data," ICBC Standard Bank said in a note, referring to
upcoming non-farm payrolls, earnings, unemployment, services PMI
and factory orders data. 
    Spot silver was down 0.3 percent at $15.93 per ounce.
Spot platinum was down 1.1 at $966.24, while palladium
 fell 0.2 percent to $545.26. 

 (Additional reporting by Vijaykumar Vedala in Bengaluru;
Editing by Meredith Mazzilli)
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