Gold set for monthly drop as Fed hike hopes bolster dollar

<html xmlns=""><head><title>PRECIOUS-Gold set for monthly drop as Fed hike hopes bolster dollar</title></head><body>

Silver, platinum, palladium face monthly loss

Gold defended support confluence zone at $1,940 level -analyst

China's May factory activity falls faster than expected

U.S. dollar index rose 0.2% to 104.378

Adds comments, updates prices

By Arundhati Sarkar

May 31 (Reuters) -Gold prices were set for their first monthly drop in three on Wednesday, as progress on the U.S. debt ceiling deal and expectations that the Federal Reserve will likely raise interest rates further bolstered the dollar.

Legislation brokered by U.S. President Joe Biden and House Speaker Kevin McCarthy to raise the $31.4 trillion debt ceiling and achieve new federal spending cuts passed an important hurdle, advancing to the full House of Representatives for debate and an expected vote on passage on Wednesday.

Spot gold XAU= held steady at $1,960.79 per ounce by 0658 GMT. It has lost 1.5% so far this month. U.S. gold futures GCcv1 rose 0.2% to $1,959.80.

An overnight decline in Treasury yields has allowed gold prices to defend a support confluence zone at the $1,940 level for now, said Yeap Jun Rong, a market analyst at IG.

But intermittent bounces since early-May have been short-lived, which raises the chances that it could be the same this time round as well, he said.

Gold prices have come off their recent near-record highs reached early in May, in part pressured by expectation that the U.S. central bank was more likely to hike rates next month than leave them unchanged.

Investors remain cautious and that has triggered some uncertainty in bullion prices, said Hareesh V, research head at Geojit Financial Services. He also said the performance of the dollar and upcoming U.S. non-farm payroll would also influence the sentiment of traders. USD/

A break of the $1,930 level may extend weakness but is unlikely to move past $1,800 in the immediate run, he added.

Elsewhere, top gold consumer China's factory activity shrank faster than expected in May, heaping pressure on policymakers to shore up a patchy economic recovery.

Spot silver XAG= was up 0.8% at $23.3988 per ounce, platinum XPT= added 0.6% to $1,020.33, and palladium XPD= gained 1.5% to $1,421.55, but were all set for a monthly drop.

Reporting by Arundhati Sarkar in Bengaluru; Editing by Shailesh Kuber, Sherry Jacob-Phillips, Subhranshu Sahu and Jane Merriman


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