NEW YORK/LONDON (Reuters) - Gold prices edged higher on Monday as geopolitical tensions offset expectations of tighter U.S. monetary policy and a stronger U.S. dollar.
Spot gold XAU= was up 0.31 pct at $1,137.55 an ounce by 2:40 p.m. EST (1940 GMT), even as the dollar reversed earlier losses. It hit $1,122.35, its weakest since Feb. 2, on Thursday under pressure from a stronger dollar after hawkish rate forecasts from the Federal Reserve.
The most active U.S. gold GCcv1 futures for February delivery settled up $5.3, or 0.47 percent, at $1,142.70 per ounce.
"We are up on geopolitical tensions," said Phillip Streible, senior commodities broker for RJO Futures in Chicago, noting the fatal shooting of a Russian ambassador in Turkey was supportive of bullion, considered a safe-haven investment.
Even so, gold prices remained capped by expectations of more rate hikes to come. The Fed raised rates for the first time in a year last week and projected three more increases in 2017, up from the two projected in September.
"Coming at a time when investors are mindful of the stimulus effects of the new incoming U.S. regime (this) is likely to be good for equity valuation and weigh on gold and risk-off assets, at least in the short term," Mitsubishi Corp strategist Jonathan Butler said.
The dollar .DXY firmed against a basket of currencies after Federal Reserve Chair Janet Yellen said the U.S. labour market has improved to its strongest in nearly a decade.
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.
High interest rates and a high dollar "will weigh on gold" going forward, ETF Securities analyst Martin Arnold said.
The benchmark 10-year U.S. Treasury yield US10YT=RR rose to its highest since September 2014 on Thursday.
Holdings of the SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, fell 0.6 percent to 836.99 tonnes on Friday. Holdings are down over 11 percent since November.
Hedge funds and money managers cut their net long position in COMEX gold contracts for the fifth straight week, taking it to a 10-month low in the week to Dec. 13, U.S. Commodity Futures Trading Commission data showed on Friday.
In other markets, palladium XPD= was down 2.79 pct at $675.60 per ounce after falling to an over one-month low of $673.50. Spot silver was down 1 at $15.92 an ounce. Platinum XPT= fell 1.31 pct to $914.5 per ounce.
Additional reporting by Swati Verma in Bengaluru; editing by Greg Mahlich and Tom Brown