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PRECIOUS-Gold holds near 3-1/2 week low as U.S. rate hike outlook drags
May 24, 2016 / 4:30 AM / a year ago

PRECIOUS-Gold holds near 3-1/2 week low as U.S. rate hike outlook drags

* Bullion hit by prospect of Fed hike sooner rather than
    * Could fall below $1,200 in next couple of months - analyst
    * Palladium marks lowest in nearly 6 wks, silver in five

 (Updates prices)
    By Vijaykumar Vedala
    BENGALURU, May 24 (Reuters) - Gold dipped on Tuesday to
trade near a 3-1/2 week low hit in the previous session,
pressured by expectations that the U.S Federal Reserve will
raise interest rates sooner rather than later.
    The prospect of an early rate hike, as indicated by Fed
meeting minutes released last week, and a strengthening dollar
have pushed down bullion by 3.6 percent so far in May, on track
for its biggest monthly decline since November. 
    Gold is sensitive to interest rates, gains in which raise
the opportunity cost of holding non-yielding bullion. 
    Spot gold fell 0.3 percent to $1,244.71 per ounce by
0634 GMT. The metal on Monday dropped to its lowest since April
28 at $1,242.63 an ounce.
    U.S. gold futures eased 0.5 percent to $1,245.30 per
    "Over the next two weeks ... if the economy is on the firm
side in the U.S. and the Fed is ready to move, maybe July at the
earliest, then I would say gold is ready to see a correction,"
said analyst Dominic Schneider of UBS Wealth Management in Hong
    "I definitely think gold can fall back below $1,200 in the
coming one or two months."
    Senior Fed officials on Monday said that rates being kept
too low for too long could cause financial instability and that
the U.S. central bank would continue with rate increases next
    The Fed's policymakers are scheduled to speak this week and
are expected to back the case for a rate hike within months. 
    "If there was to be a hint coming, it could come on Friday
when Janet Yell appears, talks and perhaps may decide to further
'prep' the markets for a rate hike going into next week," INTO
Capstone analyst Edward Meier said in a note.  
    Fed Chair Janet Yell will be at a panel event hosted by
Harvard University on Friday. 
    Goldman Sachs sees a 35-percent chance of a rate hike at the
Fed's June 14-15 policy meeting. 
    Holdings in SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, rose 0.38 percent to 872.52
tonnes on Monday.
    Meanwhile, spot silver fell 0.6 percent to $16.26 per
ounce to touch a new five-week low, while spot platinum 
remained flat at $1,006 per ounce, after touching a four-week
low of $1,000.50 earlier in the day. 
    Spot palladium dropped 0.6 percent to $544.75 per
ounce, having hit a near six-week trough of $543.50 earlier in
the session. 

 (Additional reporting by Koustav Samanta in Bengaluru; Editing
by Joseph Radford and Subhranshu Sahu)

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