Gold eases, but holds near two-week high on Fed rate caution

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold inched lower on Tuesday, as investors turned cautious after the metal failed to sustain a recent rally, though it held near the previous day's two-week high after the Federal Reserve further dampened speculation about an imminent U.S. rate rise.

The consolidative session came after Fed Chair Janet Yellen gave a largely upbeat outlook for the U.S. economy on Monday and said interest rate increases were coming. Investors, however, focussed on her lack of guidance about when they would materialise.

Spot gold was down 0.1 percent at $1,243.43 an ounce at 2:58 p.m. EDT (1858 GMT), while U.S. gold futures for August delivery settled down 40 cents at $1,247 an ounce. Spot gold hit its highest since May 24 on Monday at $1,248.40.

"We still have a lot of uncertainty out there and I think gold is a well bid market, so dips are going to be bought," said Bill O'Neill, co-founder of commodities investment firm Logic Advisors.

"There isn't going to be a lot of aggressive selling, so there's bit of a vacuum of selling."

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which the metal is priced.

After sliding 6 percent in May after Fed officials struck a more hawkish tone on rates, gold has risen about 2.4 percent so far this month as expectations for a summer rate rise faded.

"Yellen was pretty non-committal - she didn't give a time frame for rate rises," Societe Generale analyst Robin Bhar said.

Almost ruling out the possibility of a rate rise at the Fed's meeting next week, two top U.S. central bankers, Dennis Lockhart and James Bullard, continued to support the prospects of a rate increase soon after.

"There doesn't seem to be any reason to sell gold over the next few weeks," ICBC Standard Bank analyst Tom Kendall said.

"The main reason feeds back into the fact the U.S. dollar is going to be travelling lower because the probability of an imminent U.S. rate increase has decreased and because the U.S. economy is not growing as strongly as people thought."

Meanwhile, world stocks advanced while the U.S. dollar was near a four-week low against a basket of currencies. [MKTS/GLOB]

Holdings in the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , fell slightly on Monday. [GOL/ETF]

Among other precious metals, silver was down 0.2 percent at $16.43 an ounce, platinum was up 0.6 percent to $996.70 and palladium was 0.6 percent lower at $553.72.

(Additional reporting by Clara Denina in London; Editing by Adrian Croft and Chris Reese)