Gold gains ahead of testimony from Fed's Yellen

By Maytaal Angel

LONDON (Reuters) - Gold edged up on Tuesday as the dollar crept lower after U.S. President Donald Trump's national security adviser Michael Flynn resigned and investors awaited testimony from U.S. Federal Reserve Chair Janet Yellen.

Yellen's semi-annual testimony at the Senate Banking Panel on Tuesday and Wednesday could offer clues to the pace of interest rate increases. Interest rate futures show that investors are pricing in about a 20 percent chance the Fed will increase rates next month.

"We don't think there'll be a rate hike in March because it's unlikely the fiscal stimulus plan will be approved by then. The Fed is in wait-and-see mode," said Simona Gambarini, commodities economist at Capital Economics.

"(This) uncertainty is going to drive gold for the next couple of months."

However, Gambarini added that rising inflation in the second half of the year will force the Fed's hand before too long and Dallas Fed President Robert Kaplan said on Monday that the Fed should move soon to avoid falling behind the curve.

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

Spot gold was up 0.5 percent at $1,230.81 an ounce by 1246 GMT, while U.S. gold futures gained 0.6 percent to $1,232.50.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.49 percent to 840.87 tonnes on Monday.

The dollar index was down 0.1 percent after Trump adviser Flynn quit over revelations that he had discussed U.S. sanctions against Moscow with the Russian ambassador before Trump took office.

"(This) will be a year littered with political and economic minefields and we do not see a scenario where gold will experience a major sell-off back to the late 2016/early 2017 lows," INTL FCStone analyst Edward Meir said.

Gold has rallied nearly 10 percent since touching 10-month lows in December.

In other precious metals, spot silver climbed 0.9 percent to $17.95, having hit its highest since Nov. 11 at $18 on Monday.

Platinum rose 0.7 percent to $1,003.80.

"Platinum also saw noticeable ETF inflows of 8,900 ounces yesterday," Commerzbank said in a note.

Palladium gained 0.6 percent to $779.30, down from a two-week high hit on Monday.

(Additional reporting by Arpan Varghese in Bengaluru; Editing by Dale Hudson and David Goodman)