Gold edges up on Europe political risk, but US rate outlook drags

Gold prices inched up on Monday on safe-haven demand ahead of elections in Europe, moving further away from 5-week lows touched late last week in expectation of an imminent rise in U.S. interest rates.

Spot gold had climbed 0.2 percent to $1,206.53 per ounce by 0330 GMT. It fell to its weakest since Jan. 31 at $1,194.55 on Friday.

U.S. gold futures rose 0.4 percent to $1,206.30 an ounce.

"Gold should find some safe-haven bids at these levels this week as the Dutch election became more fraught over the weekend," said Jeffrey Halley, senior market analyst at OANDA.

Worries surround this week`s parliamentary election in the Netherlands, which faces political disarray as mainstream parties struggle to forge a viable coalition.

But expectations that the U.S. Federal Reserve will hike rates this week are likely to drag on gold prices. The metal is sensitive to higher U.S. rates as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"The Street (is) pricing in a 100-percent chance of a rate hike," said OANDA`s Halley.

Meanwhile, holdings of SPDR Gold Trust, the world`s largest gold-backed exchange-traded fund, declined 1.06 percent to 825.22 tonnes on Friday. 

Hedge funds and money managers slashed their net long position in COMEX gold from the highest in 3 months in the week to March 7, and cut it slightly in silver, U.S. Commodity Futures

Trading Commission data showed on Friday.

Silver rose 0.1 percent to $17.06 an ounce on Monday, after falling to its lowest since Jan. 27 at $16.78 late last week.

Platinum advanced 0.3 percent to $944.60 an ounce. It fell to its lowest since Jan. 4 in the previous session at $928.50. Palladium was up 0.7 percent at $749 an ounce.