February 14, 2017 / 3:59 PM / 8 months ago

PRECIOUS-Gold pares gains as dollar firms on Fed's Yellen testimony

    * Yellen says Fed on course to raise rates at an upcoming
meeting
    * U.S. dollar index hits three-week highs
    * SPDR Gold holdings up 0.49 percent

 (Adds comment, byline, NEW YORK dateline; updates prices)
    By Marcy Nicholson and Maytaal Angel
    NEW YORK/LONDON, Feb 14 (Reuters) - Gold came off its highs
on Tuesday, as the dollar advanced after U.S. Federal Reserve
Chair Janet Yellen said the central bank will likely need to
raise interest rates at an upcoming meeting with the economy
expanding further.
    The Federal Reserve chair struck a more hawkish tone than
investors had expected, although she did flag considerable
uncertainty over economic policy under the new administration.
    U.S. President Donald Trump's national security adviser
Michael Flynn resigned on Tuesday over revelations that he had
discussed U.S. sanctions against Moscow with the Russian
ambassador before Trump took office.             
    Spot gold        traded 0.4 percent higher at $1,229.49 an
ounce by 2:36 p.m. EST (1936 GMT), while U.S. gold futures
        settled down 0.03 percent at $1,225.40.
    The dollar index        reached the highest in more than
three weeks following Yellen's prepared remarks before the
Senate Banking Committee, while Wall Street rose to a record.
           
    "Yellen is trying to nudge the expectations for a rate hike
in March higher. This doesn't mean they will move in March, but
the Fed wants to have the option to move," said Omer Esiner,
chief market strategist at Commonwealth Foreign Exchange Inc.
    Gold is highly sensitive to rising U.S. interest rates,
which increase the opportunity cost of holding non-yielding
bullion while boosting the dollar, in which it is priced.
    "There's a nod to further tightening ahead and the risks of
waiting too long, and there is a reference to the need at
upcoming meetings to evaluate if the economy is evolving in a
way that makes further hikes appropriate," said Avery Shenfeld,
chief economist for CIBC Capital Markets in Toronto.
    "Note the use of the plural on 'meetings,' so there was no
specific allusion to a March hike in the statement, and Yellen
also emphasized that any hikes will be 'gradual.'"
    Ahead of the testimony, Richmond Fed President Jeffrey
Lacker said the U.S. central bank will likely have to raise
rates faster than financial markets currently expect given any
new policies by the Trump administration, while uncertain, will
force the central bank's hand.             
    On the upside for gold, holdings of SPDR Gold Trust      ,
the world's largest gold-backed exchange-traded fund, rose 0.49
percent to 840.87 tonnes on Monday.          
    Gold has rallied nearly 10 percent since touching 10-month
lows in December.
    In other precious metals, spot silver        rose 1 percent
to $17.97, having hit its highest since Nov. 11 above $18
earlier.
    Palladium        gained 1 percent to $782.40 while platinum
       was up 0.6 percent at $1,001.20.
    "Platinum also saw noticeable ETF inflows of 8,900 ounces
(Monday)," Commerzbank said in a note.

 (Additional reporting by Arpan Varghese in Bengaluru; editing
by Keith Weir, G Crosse)
  

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