Gold price dips below $1,200

On Monday, gold continued its slide after Federal Reserve chair Janet Yellen suggested an early interest rate hike may be appropriate and large-scale futures and options speculators sharply reduced bullish positions.

In unexpectedly brisk holiday trading gold futures in New York for delivery in June dropped to a day low of $1,199.00 an ounce, levels last seen February 17 on an intra-day basis. Later the contract clawed back some losses to exchange hands at $1,207 by mid-day.

The gold price is down roughly $100 per ounce in the month of May after briefly scaling $1,300 at the end of April. Gold is in the midst of its longest unbroken losing streak since late November after falling for nine days straight. Year to date gold is holding onto near 14% gains.

After holding onto historically elevated long positions – bets that prices will go up – despite a turn in sentiment as gold retreated during May "managed money" investors on the gold derivatives market such as hedge funds turned decidedly bearish last week.

Higher interest rates raises the opportunity costs of holding gold as the metal provides no yield and any gains for investors is through price appreciation

Last week hedge funds added to shorts – bets that gold can be bought at a cheaper price in future – and cut back longs slashing overall net position by 26%.

That is a sharp reversal from positions held in recent weeks which was at the highest level since the August 2011. Gold futures peaked at an all-time high above $1,900 an ounce that month.

According to the CFTC's weekly Commitment of Traders data up to May 24 released on Friday on a net basis speculators are now long 16.9 million ounces on a net basis, down from 23.4 million ounces mid-May.

On Friday, Yellen was uncharacteristically hawkish during a debate at Harvard University echoing similarly aggressive comments by her colleagues on the Fed's rate-setting committee, saying a rate rise during the summer months is probably appropriate.

Yellen's comments caused a spike in government bond yields and boosted the dollar which usually move in the opposite direction of the gold price. Higher interest rates raises the opportunity costs of holding gold as the metal provides no yield and any gains for investors is through price appreciation.