By Manolo Serapio Jr
SINGAPORE (Reuters) - Gold dropped for a second straight session on Monday, slipping further from a three-week high, as the dollar climbed after Federal Reserve Chair Janet Yellen signaled the U.S. central bank may be on course to raise interest rates later this year.
Bullion may be set to give up recent gains fueled by the Fed's March policy statement that it was prepared to move more slowly in hiking U.S. rates than the market expected. The metal rose for seven consecutive sessions after the Fed's meeting this month in its longest rally since 2012.
On Friday, Yellen said an increase in the Fed's benchmark rate "may well be warranted later this year" given sustained improvement in U.S. economic conditions.
"Yellen's latest comments might just change the course of gold and cause a downward movement in the price from hereon," said Howie Lee, analyst at Phillip Futures, who sees gold dropping to as low as $1,180.
Spot gold fell as much as 1 percent to $1,186.75 an ounce and was off 0.9 percent at $1,188.65 by 0732 GMT. It touched $1,219.40 on Thursday, its loftiest since March 2.
Bullion is headed for a second consecutive monthly drop in March as a looming U.S. rate hike dims the appeal of a non-interest bearing asset.
U.S. gold for April delivery dropped 1 percent to $1,187.90 per ounce as the dollar rose against the euro and a basket of major currencies. [USD/]
But analysts agree that the Fed will be anything but aggressive in its rate hike path, with many looking at the first rate increase happening in September instead of June as they predicted earlier.
"Given falling oil prices and slowing growth globally they cannot afford to raise rates too early so I think the first rate hike will happen in September," said Lee at Phillip Futures.
Mizuho Bank said Yellen's latest remarks showed the Fed remained "delicately determined" with regard to raising rates.
"Yellen was decidedly non-aggressive on her views of the underlying, residual slack from the financial crisis that requires a gradual move up in equilibrium real Fed rates," the bank said in a note.
Investors were also keeping an eye on tensions in Yemen which aided gold's climb last week. Yemeni fighters loyal to the Saudi-backed President Abd-Rabbu Mansour Hadi clashed with Iranian-allied Houthi fighters on Sunday in Aden, the absent leader's last major foothold in the country.
(Reporting by Manolo Serapio Jr.; Editing by Ed Davies and Gopakumar Warrier)
