Gold edges back below $1,240 after post-Yellen rally

By Jan Harvey

LONDON (Reuters) - Gold edged back below $1,240 an ounce on Wednesday as investors cashed in some of the previous day's 1.7 percent gains, sparked by Fed chair Janet Yellen's indication that she remained cautious on further interest rate hikes.

In her first comments since the Federal Reserve opted to keep rates on hold two weeks ago, Yellen said inflation has not yet proven durable against the backdrop of global risks to the U.S economy, including depressed oil prices and worries over China.

Fading expectations for further hikes weighed on the dollar and buoyed gold prices, which came under pressure last year from anticipation that rates would rise. Higher rates increase the opportunity cost of holding non-yielding assets, such as gold.

Spot gold was at $1,237.66 an ounce at 1030 GMT, down 0.3 percent, having risen 1.7 percent on Tuesday after Yellen's speech. U.S. gold futures for April delivery were up $2.50 an ounce at $1,238.30.

Yellen's remarks came after a string of hawkish comments from Fed officials last week that prompted a 3 percent slide in gold prices.

"Yellen surprised the market by her dovish comments after more aggressive comments from other FOMC members last week," Saxo Bank's head of commodities research Ole Hansen said. "The combination of a weaker dollar, reduced rate hike expectations and lower bond yields remain the key positive drivers for gold.

"Coming out of a very strong quarter, I'm a little concerned that we may have to look towards the third quarter for additional gains," he added. "We saw profit taking in ETFs yesterday after the run up and this combined with a very rapid build up in futures longs could indicate a longer period of consolidation."

Holdings of the world's biggest gold-backed exchange-traded fund, SPDR Gold Shares, declined for the first day in two weeks on Tuesday, by 3.3 tonnes.

The dollar index edged off early lows on Wednesday, though it remained down 0.2 percent. Focus is now shifting to the main U.S. jobs data later this week.

"Though the rally looks intact it can be dented by a good employment number in the non-farm payrolls release for March scheduled for Friday," HSBC said in a note. "A number above 200,000 new net jobs could wear on gold and clip recent gains."

Among other precious metals, silver was up 0.2 percent at $15.38 an ounce, platinum was up 0.1 percent at $968.50 an ounce and palladium was up 0.1 percent at $574.05 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Ruth Pitchford)