GOLD BULLION erased an earlier $10 gain in London trade Monday lunchtime, slipping from new 3-month highs against the Dollar as the US currency rallied ahead of this week's release of minutes from the Federal Reserve's latest policy meeting.

 

With those minutes due Wednesday, "You could imagine a case being made for a rate increase in June," said Chicago Fed president Charles Evans in a speech in Stockholm, Sweden.

 

But for his part, "Policy should be sufficiently accommodative so [we see inflation] modestly overshooting our 2 percent target sometime in the medium term," said Evans, widely recognized as a leading 'dove' on raising the US Fed's key rate from the 0% low first reached over 6 years ago.

 

"Expectations that a middling US economy will see a delay in interest rate hikes appear to be behind [Friday's] move," says a note from Chinese-owned commodities dealer ICBC Standard Bank, "with silver also strengthening further heading into US trade" today.

 

"Weaker-than-expected data have buoyed gold prices," agrees London market-maker Barclays, but the bullion bank's analysts "maintain the view that Q3 15 is likely to be the weakest quarter for gold this year" because its economists now forecast the first Fed rate hike in September.

 

At the same time however, "seasonal buying is likely to limit the potential downside" over September and into October – the peak period for India's gold bullion demand ahead of the Diwali festival.

 

Last week's 4 successive up-days for gold bullion prices mark the "longest winning streak since it bounced off its year-to-date lows in mid-March," notes Jonathan Butler at Japanese conglomerate Mitsubishi.

 

"Continuation of the uptrend will be largely predicated on the US Dollar’s performance during this data-intensive week, and on whether US Treasury yields continue to decline."

 

US Treasury bonds fell Monday morning, pushing 10-year yields back up towards 2.20% and catching up with the 0.05 percentage point rise in German and UK yields as government debt prices dropped.

 

While US hedge-fund manager John Paulson continued to hold a large allocation to exchange-traded gold trust shares between January and March, gold ETF investors cut their exposure to 4-months lows last week, reducing the amount of bullion needed to back the value of the giant SPDR Gold Trust (NYSEArca:GLD) some 4 tonnes to 728 tonnes.

 

Silver's largest bullion-backed trust fund, the iShares vehicle (NYSEArca:SLV) also shrank to the lowest since mid-January as prices hit 4-month highs on Friday, cutting the metal needed to 9,925 tonnes.

 

Silver prices outperformed gold bullion once again Monday in London, holding a 0.9% gain versus the Dollar and extending its week-on-week gain to 7.3% at $17.65 per ounce.