Gold struggles near 3-week low as U.S. dollar races higher

Investing.com - Gold prices struggled near the lowest level in three weeks on Monday, as the U.S. dollar edged higher amid growing expectations that the Federal Reserve would raise interest rates after the summer.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery shed $2.10, or 0.18%, to trade at $1,187.70 a troy ounce during European morning hours.

Prices held in a range between $1,185.70 and $1,197.30. On Friday, gold tacked on $1.00, or 0.08%, to settle at $1,189.80.

Futures were likely to find support at $1,180.20, the low from May 28, and resistance at $1,208.90, the high from May 26.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.6% at 97.52 early Monday, not far from the five-week highs of 97.88 hit last week.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

The dollar shrugged off data on Friday showing that the U.S. economy contracted in the first quarter, as recent indications of a rebound in growth continued to support expectations for higher interest rates.

U.S. gross domestic product contracted at an annual rate of 0.7% in the first three months of the year, instead of the initial estimate of 0.2% growth the Commerce Department said.

Investors looked ahead to the release of key data later in the session for further indications over the timing of a rate increase and the strength of the economy.

The Institute of Supply Management was to release data on manufacturing activity for May later Monday. Market players are also looking ahead to the nonfarm payrolls report due later this week.

The greenback has been well-supported in recent sessions amid speculation the Federal Reserve was on track to raise interest rates in September.

Recent economic data has indicated that the U.S. economy is gaining momentum after a slowdown in the first quarter, supporting the case for higher interest rates later this year.

Expectations of higher borrowing rates going forward is considered bearish for gold, as the precious metal struggles to compete with yield-bearing assets when rates are on the rise.

Also on the Comex, silver futures for July delivery dipped 1.3 cents, or 0.08%, to trade at $16.68 a troy ounce. Silver inched up 3.2 cents, or 0.19%, on Friday to end at $16.70.

Elsewhere in metals trading, copper for July delivery advanced 0.4 cents, or 0.15%, to trade at $2.732 a pound. On Friday, prices slumped to $2.724, a level not seen since April 24, before closing at $2.728, down 3.9 cents, or 1.43%.

A pair of manufacturing reports released on Monday underlined concerns over the health of China's manufacturing sector.

The HSBC final manufacturing index for May came in at 49.2, remaining below the 50-point level that separates growth in activity from contraction for the third straight month.

Meanwhile, the official China's manufacturing purchasing managers' index inched up to 50.2 last month from 50.1 in April, broadly in line with market expectations.

China's economy grew at the slowest pace in six years in the first quarter, underling speculation policymakers will have to introduce further easing measures to jumpstart the economy amid lackluster growth.

Since November, the People's Bank of China has introduced a series of stimulus measures, including lowering interest rates three times and cutting the reserve requirement ratios of major banks twice, in order to spur economic activity and boost growth.

The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year. Copper traders view Chinese factory activity as an indicator of the nation's copper demand, as the red metal is widely used by the sector.

In the currency market, the euro slipped lower against the dollar on Monday as ongoing concerns over the prospect of a Greek debt default weighed.

Concerns over a possible default have mounted since Athens warned last month that it will be unable to make the repayment if a cash-for-reforms deal with its international lenders was not reached by then.

Greece is due to make a €305 million payment to the International Monetary Fund on June 5.