Gold down on strong shares, set for biggest monthly loss since September

By Clara Denina

LONDON (Reuters) - Gold edged down on Friday and was heading for its biggest monthly loss since September as European shares traded near seven-year highs and upbeat U.S. data supported expectations of a rate hike by the Federal Reserve this year.

Gold has fallen more than 7 percent from a five-month high above $1,300 an ounce hit in January as expectations of a U.S. rate increase hurt its appeal as an insurance against risk.

Spot gold > was down 0.2 percent at $1,206.20 an ounce by 1052 GMT, while U.S. gold futures were down $3.90 at $1,206.20 an ounce. Spot prices have gained 0.3 percent on the week, but have fallen nearly 6 percent in February.

 

"If the Fed really hikes interest rates in the second quarter and you can't really discount that entirely, there is still that shorter-term target that you could go towards $1,150," Bank of America-Merrill Lynch strategist Michael Widmer said.

The dollar slipped 0.3 percent against a basket of leading currencies <.DXY> but was still on track for its eighth straight month of gains on better U.S. economic data and comments from Federal Reserve officials that bolstered bets for a rate rise this year.

Dovish signals from Federal Reserve Chair Janet Yellen this week fizzled out after a 2.8 percent jump in U.S. durable goods orders in January, putting the prospect of a mid-year rate rise back on the table.

In addition, San Francisco Fed President John Williams and St. Louis Fed chief James Bullard both suggested the U.S. central bank might end its near-zero interest rate policy sooner than some traders expect.

But the fact that gold was holding up above $1,200 indicated "that an eventual (U.S.) rate rise has been largely digested by the market and may therefore be largely priced in", HSBC said in a note.

The market will now focus on the GDP revision for the fourth quarter due on Friday, traders said.

China's gold imports from Hong Kong rebounded in January from a three-month low in December, reflecting increased demand ahead of the Lunar New Year.

Premiums on the Shanghai Gold Exchange remained around $4 an ounce over the global spot price on Friday, down slightly after Chinese buyers returned to the market following the Feb. 18-24 Lunar New Year holiday.

Spot silver > dropped 0.5 percent to $16.44 an ounce. Palladium > fell 0.4 percent to $803.90 an ounce and platinum > was down 0.1 percent at $1,172.45 an ounce.

(Additional reporting by Manolo Serapio Jr in Singapore; Editing by Liisa Tuhkanen)