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Gold up after Yellen hints at only gradual tightening

Reuters  |  LONDON 

By Maytaal Angel

(Reuters) - Gold edged higher on Thursday on a weaker dollar and lower U.S. yields, with investors wagering that policy tightening in the United States would be glacial at best, though gains were capped by surging stock markets.

The dollar was steady against a basket of currencies after falling to its lowest since last October on what was viewed as dovish testimony on Wednesday from U.S. Federal Reserve Chair Janet Yellen.

A weaker U.S. currency makes dollar-priced gold cheaper for non-U.S. investors.

Capping gains, however, shares hit a record high for the fourth time in less than a month as investor took Yellen's remarks as a green light for risk-taking.

"Risk off is what we need for gold to really come to life, when stock markets do fall, which I think is only a matter of time. Then we'll see gold rise sharply," said analyst Fawad Razaqzada. "Until then it's still a range-bound market."

Spot gold rose 0.2 percent to $1,222.15 an ounce by 1007 GMT, having hit its lowest in nearly fourth months at $1,204.45 earlier in the week.

U.S. gold futures for August delivery rose 0.2 percent to $1,221.20.

The U.S. economy is healthy enough for the Fed to raise interest rates, though low inflation and a low neutral rate could leave the central bank with diminished leeway, Yellen said on Wednesday.

That prompted a rally in treasuries, with yields on two-year notes falling to three-week lows. Lower yields reduce the opportunity cost of holding non-yielding bullion while weighing on the dollar, in which gold is priced.

Yellen's cautious comments on inflation put the focus squarely on U.S. consumer price index data due on Friday.

Spot gold could revisit its July 10 low of $1,204.45, said technical analyst Wang Tao.

Among other metals, silver rose 0.3 percent to $15.93 an ounce.

"Interestingly, the gold/silver ratio is approaching 80, meaning that silver is very inexpensive compared with gold and is a particularly good bargain," said Gregor Gregersen at Singapore-based Silver Bullion Pte.

Palladium was flat at $866.49 while platinum rose 0.2 percent to $918.40, adding to the previous session's 1.7 percent gain, its biggest since June 2.

(Additional reporting by Nithin Prasad and Arpan Varghese; Editing by David Goodman)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)