Gold bounces off 5-1/2-month low on physical buying

Gold prices rose in Asian trade on Monday, snapping a 3-session losing streak, buoyed by physical buying after the metal slid to a 5-1/2-month low on Friday.

Spot gold was up 0.42 percent at $1,213.31 an ounce by 0655 GMT. In the previous session, the metal fell as much as 1 percent to mark its lowest since May 30 at $1,203.52.

US gold futures were up 0.4 percent at $1,213.30 per ounce.

"The low prices have induced some interest in the physical market," said ANZ analyst Daniel Hynes.

"However, the dollar has got some momentum behind it and until a turnaround, it is going to be difficult for gold prices to recover."

The dollar held near 13 1/2-year highs against a currency basket on Monday, on continued bets of faster inflation and higher interest rates.

Bullion has fallen 5.4 percent this month as of Friday's close, pressured by nerves around the US election and speculation over the timing of an interest rate hike by the Federal Reserve.

"There are chances for prices to weaken below $1,200 in the next few weeks leading into the Federal Open Market Committee (FOMC) meeting," Hynes added.

Markets now put a 90 percent chance on the Fed hiking rates by 25 basis points when they meet on Dec 14.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

"We expect gold to continue to struggle against a backdrop of a firmer US stock market, a stronger dollar and rising global rates," Edward Meir, analyst with INTL FCStone, said in a note.

Spot gold seems to have found a support at $1,204 per ounce, it may hover above this level for one day or bounce moderately into a range of $1,222-$1,235, according to Reuters technicals analyst Wang Tao.

Gold premiums in India, the second largest consumer of the precious metal, jumped to two-year highs in the week to Nov 18 as jewellers ramped up purchases on fears the government might curb imports after withdrawing higher-denomination notes from circulation.

Speculators cut their net long position in COMEX gold for the first time in four weeks, in the week to Nov. 15, and also reduced it in silver, US Commodity Futures Trading Commission data showed on Friday.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.58 percent to 915.29 tonnes on Friday.

Silver gained 0.77 percent to $16.71 per ounce.

Platinum rose 0.54 percent to $925.50 and palladium was up 0.35 percent to $726.97 an ounce.