Gold loses traction, closes in on 5-1/2-year low

By Marcy Nicholson and Veronica Brown NEW YORK/LONDON (Reuters) - Gold lost ground on Monday, moving closer to last week's 5-1/2-year lows below $1,100 per ounce, with expectations for a near-term U.S. interest rate hike seen keeping momentum firmly with the bears. While the market has been fixated on U.S. monetary policy, traders said further selling may have come on the back of a need to cover losses elsewhere as Chinese stock market indexes experienced their biggest one-day loss since 2007. Spot gold was down 0.6 percent at $1,092.36 an ounce by 3:20 p.m. EDT (1920 GMT), after falling for a fifth straight week last week, the longest slide since late 2012. In contrast, U.S. gold for August delivery settled up 1 percent at $1,096.40 an ounce on short-covering after data late Friday showed that U.S. speculators had turned bearish on Comex gold for the first time in at least a decade in the week ended July 21. "The market is recouping some of its losses," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago. The Federal Reserve will hold a two-day meeting this week where policymakers are likely to send more signals pointing to a rate rise later in the year as the U.S. economy strengthens. "The most likely outcome is that Fed rhetoric will emphasise that the U.S. economy is on track for a rate hike(s) this year," Mizuho Bank said in a note. "It's people being cautious ahead of tomorrow, not knowing whether the Fed is going to talk about (a rate hike in) September or December," said George Gero, precious metals strategist for RBC Capital Markets in New York, referring to the U.S. market's strength. Bullion lost more than 3 percent last week after a sudden, sharp rout across New York and Shanghai markets sparked further selling, sinking prices to $1,077 on Friday, their lowest since February 2010. The drop in gold came despite the dollar <.DXY> staying on the back foot, falling 0.8 percent against a basket of currencies after a drop in U.S. stocks and bond yields.[USD/] Holdings of the world's biggest gold-backed exchange-traded fund, the SPDR Gold Trust , also fell for a seventh day on Friday to 21.87 million ounces, the lowest since September 2008. [GOL/ETF] In other precious metals, spot palladium fell 1.9 percent to $610.50 an ounce and platinum lost 0.2 percent to $980.25. Silver was down 0.6 percent at $14.56. (Additional reporting by Manolo Serapio Jr in Manila; Editing by Jason Neely, Pravin Char and Marguerita Choy)