Gold rebounds on softer dollar, US data eyed

Gold edged higher on Monday, recovering from a near 2-per cent slide the session before, as weak U.S. data hurt the dollar and bolstered hopes the Federal Reserve would stick to its bullion-friendly stimulus programme.

Gold fell more than 6 per cent in May amid concerns the Fed could slow its monthly bond purchases as the U.S. economy showed signs of improvement. But a flurry of disappointing data, including Friday's report on a decline in US consumer spending, has weakened arguments for curbing the scheme.

US numbers will remain in focus this week in the run up to the Fed's next policy meeting later in June.

"Everyone is waiting for US non-farm payroll data this Friday to see what the central bank will do," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. The central bank has said it would keep up the stimulus campaign until the employment situation improved.

Spot gold had risen 0.8 per cent to $1,396.36 an ounce by 0700 GMT. The 1.9-per cent drop in the last session was gold's steepest single-day fall since May 17, helping push the metal to a second straight monthly decline.

U.S. gold rose 0.2 per cent to $1,396.2 on Monday. Silver, platinum and palladium tracked gold higher.

The softer dollar is also supporting gold prices, said Peter Fung, head of dealing at Hong Kong's Wing Fung Precious Metals.

Fung said Friday's sharp price drop lured Chinese buyers on Monday, despite data pointing to slowing economic momentum in the world's second-biggest gold consumer.

China's factory activity shrank for the first time in seven months in May as both domestic and external demand softened.

Physical demand for gold has been strong since a mid-April drop in spot prices. Premiums in Asia are at or near all-time highs as gold has dropped nearly 17 per cent for the year.

Gold demand in India will be as strong as last year in the second half of 2013 due to prospects of good monsoon rains that will boost the income of farmers, the key buyers, the World Gold Council CEO said.

Hedge funds and money managers increased their bullish bets in gold futures and options for the first time in four weeks, a report by the Commodity Futures Trading Commission showed on Friday.

Declines in the holdings of SPDR Gold Trust, the largest gold-backed exchange traded fund, have stopped after nearly three weeks. Holdings rose last Wednesday and have been unchanged since.

Copyright: Thomson Reuters 2013