* Dollar supported by Fed rate hike prospects
* Fed presidents' speeches this week in focus
(Updates prices, adds comment)
By Clara Denina
LONDON, May 23 (Reuters) - Gold dipped to a 3-1/2 week low
on Monday, as the dollar firmed and expectations rose that the
U.S. Federal Reserve will hike interest rates as early as June.
Bullion has been under pressure since the Fed last week
released the minutes of its April meeting, which showed
officials believe the U.S. economy could be ready for another
interest rate increase next month.
Higher interest rates increase the opportunity cost of
holding non-yielding bullion.
U.S. interest rates being kept too low for too long could
cause financial instability in future and stronger market
expectations for a rate rise are "probably good", St. Louis
Federal Reserve President James Bullard said on Monday.
"The Fed minutes were clearly more hawkish than expected and
this has resulted in some change in sentiment and there is now
an increased likelihood that they may raise rates in June or
July," ABN Amro analyst Georgette Boele said.
Spot gold XAU= fell to $1,242.63 an ounce, the lowest
since April 28, in earlier trade and was down 0.5 percent at
$1,245.99 an ounce at 1412 GMT. U.S. gold futures GCcv1 also
dipped 0.5 percent to $1,246.80.
Gold extended losses after the dollar, which had earlier
fallen against the yen after robust trade data from Japan,
firmed to remain close to its highest in nearly two months
against a basket of major currencies, reached last week after
the Fed minutes. FRX/
A firmer dollar makes dollar-denominated assets such as gold
more expensive for other currency holders.
"In the longer term we are not on a massively negative path
for gold here because the Fed is only likely to raise rates
gradually but in the shorter term a stronger dollar and
uncertainty about the hike timing could weigh on gold," Danske
Bank senior analyst Jens Pedersen said.
The Fed's policymakers are scheduled to speak this week and
are expected to back the case for a rate hike within months. Fed
Chair Janet Yellen will be at a panel event hosted by Harvard
University on Friday. MKTS/GLOB
"The comments from Yellen will absolutely be a test for the
dollar and consequently for gold," ABN Amro's Boele said.
Holdings in the world's largest gold-backed ETF SPDR Gold
Trust GLD rose 1 percent to 869.26 tonnes on Friday, the
highest since November 2013. GOL/ETF
Spot silver XAG= dropped 0.7 percent to $16.39 an ounce,
spot platinum XPT= was down 1.2 percent at $1,010.60 an ounce
and spot palladium XPD= fell 1.3 percent to $549.22 an ounce.