Gold falls slightly as US dollar, equities gain ahead of Yellen testimony

[BENGALURU] Gold edged lower on Tuesday on a firmer US dollar and equities as the market awaited cues on the path of interest rate hikes in the United States ahead of Federal Reserve Chair Janet Yellen's testimony on Wednesday.

The market was looking ahead to Wednesday and Thursday as Ms Yellen will deliver two days of testimony on the US central bank's semi-annual report on monetary policy and the economy.

Based on the minutes of the last Federal Open Market Committee (FOMC) released on July 5, Ms Yellen may testify that the Fed will seek to reduce the central bank's Treasury bond holdings and mortgage-backed securities by August, effectively tightening the supply of US dollars.

The FOMC also indicated in the minutes that another interest rate hike would happen later this year.

Bullion is highly sensitive to rising rates because they push up bond yields, increasing the opportunity cost of holding non-interest bearing gold. A higher US dollar, in which gold is priced, would also lower the value of the yellow metal.

"If the (Yellen) commentary is a little more hawkish, it's going to put a little more pressure on gold again and going by previous FOMC minutes, it's probably going to be," said MKS PAMP analyst Tim Brown, adding "a lot of it has already been priced in".

Spot gold was down 0.2 per cent at US$1,211.34 per ounce as of 0656 GMT.

US gold futures for August delivery fell 0.2 per cent to US$1,210.50 per ounce.

"The rising dollar and rise in (Treasury) yields will continue to mount pressure on the gold and silver in the near term," MKS PAMP trader Alex Thorndike said in a note.

US Treasury yields slipped on Monday, in line with weak European markets, as sharp gains following Friday's strong US non-farm payrolls report prompted investors to consolidate positions. After Friday's jobs report, US 10-year yields had hit an eight-week high of 2.398 per cent.

Asian shares and the US dollar were slightly higher on Tuesday.

Holdings at SPDR Gold Trust, the world's largest gold-backed exchange-traded fund fell 0.35 per cent to 832.39 tonnes on Monday from 835.35 tonnes on Friday.

Spot gold is expected to rise into a range of between US$1,225 and 1,231 per ounce, as suggested by its wave pattern and a Fibonacci projection analysis, according to Reuters technical analyst, Wang Tao.

Among other precious metals, silver fell 0.5 per cent to US$15.55 per ounce, while palladium rose 0.3 per cent to US$842.25 per ounce.

Platinum fell for a third day, down 0.8 per cent at US$892.35 per ounce. On Monday, prices fell to as low as US$889.25, the lowest since May 4.

REUTERS