Gold dips as U.S. data, Yellen rate hike hints lift dollar

By Jan Harvey

LONDON (Reuters) - Gold fell after stronger than expected U.S. inflation and retail sales on Wednesday added to expectations of near-term U.S. interest rate rises, driving the dollar to a one-month high.

U.S. Federal Reserve Chair Janet Yellen said on Tuesday that delaying increases could leave the Fed's policymaking committee behind the curve.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Spot gold was down 0.2 percent at $1,226.35 an ounce at 1511 GMT.

"This has to do with the dollar getting stronger on the back of the more hawkish comments from the Fed," Oxford Economics analyst Daniel Smith said. "Yellen has highlighted a lot of risks around the Trump presidency, but nevertheless her foot is firmly poised over the accelerator."

"It makes sense if you think about the context -- generally the U.S. is doing pretty well if you look at the data that's coming through."

Yellen's comments boosted appetite for assets perceived as higher risk, like equities, as well as the dollar.

World stocks hit 21-month peaks after Yellen flagged a possible interest rate rise next month, while the dollar hit a one-month peak after the stronger-than-forecast data supported the view of a pick-up in U.S. economic growth.

"We remain cautious (on gold), given our expectation for solid growth, rising interest rates and a strengthening U.S. dollar ," Julius Baer said in a note.

The world's largest physically-backed gold fund, SPDR Gold Shares , said its holdings were unchanged on Tuesday. While it has seen inflows of 18 tonnes so far this year, that is well below the pace of increases a year ago, which saw inflows of 69 tonnes in the same period.

Regulatory filings showed on Tuesday that Paulson & Co cut its stake in the fund as bullion prices posted their weakest quarterly performance in 3-1/2 years, while Soros Fund Management LLC got out of gold in the fourth quarter of 2016.

U.S. gold futures for April delivery were up $2.70 an ounce at $1,228.10

Among other precious metals, silver was down 0.2 percent at $17.92 an ounce, off the previous session's three-month high of $18.07, while platinum was down 0.2 percent at $998.80 an ounce.

Palladium was up 0.8 percent at $784.90 an ounce, bucking the falling trend among other precious metals to rise in line with other cyclical assets.

(Additional reporting by Arpan Varghese and Nallur Sethuraman in Bengaluru; Editing by Greg Mahlich and Alexander Smith)