Gold falls as Yellen points to rate hike, dollar jumps

[LONDON] Gold eased on Friday, on course for its first weekly decline in four weeks, after US Federal Reserve Chair Janet Yellen said she expected an interest rate hike this year.

The dollar extended gains following the speech, after initially climbing on a stronger-than-expected rise in US core consumer prices in April.

Ms Yellen said she expected the central bank to raise rates this year as the US economy was on course to bounce back from a sluggish first quarter and as headwinds at home and abroad begin to wane.

Spot gold, higher initially, fell 0.1 per cent to US$1,204.72 an ounce by 3 pm EDT (1900 GMT). It was down 1.6 per cent for the week. US gold futures for June delivery were little changed, settling down 10 cents at US$1,204 an ounce.

The market was quiet ahead of public holidays on Monday in Britain and the United States. "(Yellen) did say that she was basically unmoved by the soft data, and she expected a rate hike this year, so to me that's a bearish factor for gold," said Bill O'Neill, co-founder of commodities investment firm LOGIC Advisors in Upper Saddle River, New Jersey. "I personally think they'll wait probably until December, unless we get a run of strong economic data." The dollar rose 1 per cent versus a basket of leading currencies, initially buoyed by data that showed the US Consumer Price Index rose 0.1 per cent last month, while core CPI, which strips out food and energy costs, increased 0.3 per cent, the largest gain since January 2013.

The Fed is aiming for inflation at 2 per cent before it will consider raising rates, but has said that a significant pickup is not a precondition to raise rates.

Higher US interest rates would increase the opportunity cost of holding non-yielding bullion.

Investor sentiment toward gold has turned bearish as prices have fallen from three-month highs reached earlier this week. "Gold continues to be drawn towards the US$1,200 pivot point. The metal has failed to move more than 3 percent on either side of US$1,200 since mid-March," MKS Group said in a note.

Gold buying was slow this week in Asia, with the Chinese hooked on surging equities. Demand in India stayed weak and was unlikely to pick up as the wedding season cools.

Silver was down 0.6 per cent at US$17.02 an ounce, heading for a 2.6 per cent weekly fall. Platinum dropped 0.9 per cent to US$1,141.74 an ounce and palladium fell 0.7 per cent to US$783.50 an ounce.

REUTERS