Gold inches up but lingers near three-week lows on US Fed rate views

Gold rose slightly on Monday as the dollar eased, but the metal continued to hold near three-week lows on growing expectations that the US Federal Reserve will hike interest rates as early as June. 

Bullion has been under pressure since the Fed released the minutes of their April meeting last week that showed officials believe the US economy could be ready for another interest rate increase next month. 

Echoing those sentiments, Eric Rosengren, president of the US Federal Reserve Bank of Boston said on Friday conditions for a rate increase are "on the verge of broadly being met."

Gold is sensitive to interest rates, gains in which raise the opportunity cost of holding non-yielding bullion. 

Spot gold inched up 0.22% to $1,254.65 per ounce at 0345 GMT, still close to $1,244 touched last week, the lowest since April 28. The US gold futures rose 0.2% to $1,255.60.

The metal found some support as the US dollar fell versus the yen on Monday, dragged lower by sliding Tokyo stocks and data showing Japan logged a much larger-than-expected trade surplus in April. 

The US dollar, however, remains close to its highest in nearly two months against a basket of major currencies reached last week, supported by the Fed's rate hike expectations. 

"We see gold continuing to work lower over the course of the coming week, as an upward trending dollar should continue to weigh in on prices," said INTL FCStone analyst Edward Meir.

The greenback fell versus the yen as Japan logged a much larger-than-expected trade surplus in April, implying a high demand for its goods and therefore for its currency.

"Leading into June, gold will be at the mercy of US dollar flows and market positioning with key support levels for the metal being $1,243 and below $1,205," said MKS Group trader Sam Laughlin.

Hedge funds and money managers raised their bullish bets in COMEX gold futures and options in the week to May 17, the day before the Fed minutes were released, data showed on Friday.

Holdings in the world's largest gold-backed ETF SPDR Gold Trust rose 1% to 869.26 tonnes on Friday, the highest since November 2013. 

Among other precious metals, spot silver was little changed at $16.51 an ounce, while spot platinum was up 0.5% at to $1,023.30 per ounce. Spot palladium fell 0.4% to $556 per ounce.