[SINGAPORE] Gold climbed back above US$1,200 an ounce on Wednesday after dropping to a seven-week low the session before, with Federal Reserve Chair Janet Yellen indicating flexibility in raising US interest rates.
The dollar weakened after Ms Yellen held back from giving a clear view on when the Fed may begin hiking rates, with US gold futures rising 1 per cent and silver prices climbing more than 3 per cent.
China's return from a week-long Lunar New Year holiday also buoyed gold prices, with premiums on the Shanghai Gold Exchange rising.
Ms Yellen said on Tuesday that while the Fed is preparing to consider rate hikes on a "meeting-by-meeting basis", an increase is not likely for at least the next couple of meetings.
Gold has risen as the overall tone of Yellen's comments was "a bit dovish", said Howie Lee, investment analyst at Phillip Futures. "But we don't think this rally will be sustainable. Yellen also made it abundantly clear that the US economy is recovering and she will be looking to normalise interest rates at one point. In the longer term that doesn't spell much optimism for gold." Spot gold was up 0.8 per cent at US$1,209.10 an ounce by 0216 GMT, after hitting its weakest since Jan 5 on Tuesday at US$1,190.91.
US gold for April delivery rose 1 per cent to US$1,209.20 an ounce. Silver, both spot and US futures , jumped over 3 percent at one stage.
Mr Lee sees US$1,230 an ounce as the initial resistance level for gold, but predicts the metal could test US$1,100 this year.
A US rate hike, which would be the first since 2006, reduces the appeal of non-interest bearing assets such as gold. "Overall, the Fed is still on track to lift its policy rate this year. June or September remains on the table," Mizuho Bank said in a note.
Ms Yellen is likely to take the same stance she made before the Senate Banking Committee when she testifies before the House Financial Services Committee on Wednesday.
In China, premiums on the Shanghai Gold Exchange rose to US$5-$6 an ounce over global spot prices from US$3-$4 before the New Year break there that began on Feb 18, reflecting firm demand from the world's No. 2 gold consumer.