Gold prices inched lower on Monday, extending losses after the metal hit a six-year peak on Friday, as investors rolled back expectations for a sharp interest rate cut at the end of this month, while tensions in the Middle East limited losses for the bullion.

FUNDAMENTALS

Spot gold was down 0.2% at $1,422.74 per ounce as of 0137 GMT. The metal hit $1,452.60 in the previous session, its highest since May 2013, before closing 1.5% lower.

U.S. gold futures were down 0.2% at $1,424.10 an ounce.

Expectations of an aggressive interest rate cut rose after New York Federal Reserve President John Williams argued for pre-emptive stimulus in a speech last week.

But a subsequent clarification that his remarks were academic and "not about potential policy actions" shredded prospects for a 50-basis-point rate cut at the end of the month.

The Wall Street Journal reported the Fed was likely to cut rates by 25 bps when it meets later this month, and may make further cuts in the future given global growth and trade uncertainties.

Expectations for a rate cut of half a percentage point at the Fed's July 30-31 meeting edged out further on Monday to hit 14.5%, according to CME's FedWatch tool, down from as high as 71% last week.

The dollar index was up 0.1% against a basket of major currencies on Monday.

Meanwhile, confrontation in the global oil trade's most important waterway has escalated with footage showing the Iranian military defying a British warship when it seized a tanker in the Strait of Hormuz on Friday.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 0.72% to 820.49 tonnes on Friday from 814.62 tonnes on Thursday.

Hedge funds and money managers raised their bullish stance in COMEX gold in the week to July 16, the U.S. Commodity Futures Trading Commission (CFTC) said in a report on Friday.

Consumers in leading Asian hubs continued to sell off physical gold this week, with some switching their holdings to silver, after a jump in prices that also attracted interest from investors betting further gains.

Russia's gold reserves stood at 71.0 million troy ounces as of the start of July, the central bank said on Friday. (Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu)

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