Gold stretched losses from the previous session on Tuesday as the dollar clung to gains on expectations the U.S. Federal Reserve was on course to increase interest rates this year.
Fed Chair Janet Yellen may provide more signals of a looming rate hike at her semiannual testimony to Congress on Wednesday and Thursday, shifting global focus to the U.S. central bank from Greece which agreed to talks on an 86-billion-euro bailout in exchange for pledging tough reforms.
Investors are now waiting for what Yellen would say in her testimony even as a U.S. rate hike is “pretty much written on the wall”, said Mark To, head of research at Hong Kong’s Wing Fung Financial Group.
“It’s probably a one-time rate increase this year and probably in September and we may see gold falling to $1,080 when that happens.”
Spot gold was down 0.2 percent at $1,155.35 an ounce by 0229 GMT, after dropping as much as 1.1 percent on Monday.
Yellen said on Friday in Cleveland that the U.S. central bank was on course to raise interest rates at some point later this year, the first hike in nearly a decade, though labour markets remained weak.
Investors tend to shun gold, which doesn’t pay interest, when market expectations point to U.S. interest rates rising.
The metal is not far above a four-month low of $1,146.75 hit last week, with its safe-haven draw also not working despite the recent equities rout in China and the Greek debt crisis.
MKS Group trader Jason Cerisola said “with short positioning at record levels (gold) may be trying to form a base around $1,150”.
Hedge funds and money managers cut their net long positions on COMEX gold futures by 13,906 lots to 7,574 contracts, the smallest since at least 2006 when Reuters records started, based on U.S. Commodity Futures Trading Commission data on Friday.
In Greece, the terms imposed by international lenders led by Germany in all-night talks at an emergency summit obliged Prime Minister Alexis Tsipras to abandon promises of ending austerity.
Economic growth in top gold consumer China is forecast to be the weakest since the global financial crisis in the second quarter, with a Reuters poll of 52 economists showing annual GDP expansion of 6.9 percent. The data will be released on Wednesday.
U.S. gold for August delivery was flat at $1,154.80 an ounce. Spot silver slipped 0.7 percent to $15.39 an ounce, while platinum and palladium were largely steady.