Gold slips as interest rate expectations sap appeal

(Reuters) - Gold fell on Monday as prospects of higher interest rates dimmed appeal for the non-yielding asset, but a softer dollar helped bullion to cling above the $1,800 support level.

FILE PHOTO: Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh May 8, 2012. REUTERS/Ajay Verma/Files

Spot gold fell 0.2% to $1,807.40 an ounce by 1311 GMT, having touched a five-month low of $1,783.50 on Friday.

U.S. gold futures rose 0.4% to $1,809.00.

The U.S. dollar was down 0.2% but held close to a two-decade high reached last month.

A weaker dollar makes gold less expensive for those holding other currencies.

“Gold bulls are stuck in a quagmire of aggressive Fed policy actions, as the prospects of higher U.S. rates erode support for the precious metal,” said Han Tan, chief market analyst at Exinity.

The U.S. Federal Reserve is expected to deliver another 75 basis point (bps) interest rate increase this month.

The European Central Bank, too, is widely expected to follow its global peers. Euro zone inflation hit yet another record high in June as price pressures broadened.

“Markets have yet to fully price in a 75 bps hike at this month’s FOMC meeting. If policymakers are forced to turn more aggressive in the face of unwavering inflation, that could spell another leg down for gold prices,” Tan said.

Investors are also awaiting publication of minutes from last month’s Fed meeting on Wednesday and U.S. employment data on Friday.

“In this environment of ever-rising interest rates, it is hard to see gold making significant gains. But if the precious metal can hold above $1,800 an ounce, then it would demonstrate that there remains significant underlying support,” said Rupert Rowling, market analyst at Kinesis Money.

Spot silver fell 0.3% to $19.81 an ounce, trading near its lowest in two years.

Spot platinum was down 0.7% at $882.75, while palladium fell by 1.1% to $1,939.83.

U.S. markets are closed for the Independence Day holiday.

Reporting by Arundhati Sarkar in Bengaluru; Editing by Jacqueline Wong and David Goodman