Gold pares gains as Fed stirs doubt over rate hike timing

By Marcy Nicholson and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold pared gains on Friday, while the dollar turned up and U.S. stocks fell, as investors struggled to decipher the timing of a U.S. interest rate increase following comments by Federal Reserve Chair Janet Yellen and other officials.

In her much-awaited speech, Yellen said the case for raising U.S. interest rates has strengthened, although increases should be gradual.

Spot gold rallied 1.5 percent to $1,341.60 an ounce and the U.S. dollar index fell 0.6 percent after Yellen spoke, but bullion later gave back all its gains and the greenback rallied 0.7 percent after Fed Vice Chair Stanley Fischer suggested that rate hikes were on track for this year. [MKTS/GLOB]

"Fischer's hawkish interpretation of Chair Yellen's comments has hamstrung the gold bull with bullion sliding back close to day's lows," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

"It's likely now that gold remains unsettled through the September Employment report."

Spot gold was up 0.02 percent at $1,321.52 an ounce by 3:00 p.m. EDT (1900 GMT). It was on track to finish the week down 1.5 percent after two straight weeks higher.

U.S. gold futures for December delivery settled up 0.1 percent at $1,325.90.

Yellen pointed to improvements in the U.S. labor market and expectations for moderate economic growth, reinforcing the view that such a move could come later this year. She did not, however, lay out a clear roadmap for what the Fed needs to see to raise rates.

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

"Yellen's highly anticipated remarks at Jackson Hole had a hawkish tilt ... although with the usual caveats that the timing will be based on how the data unfold," said Avery Shenfeld, chief economist for CIBC Capital Markets.

Gold discounts in India hit near three-month lows this week, while buying gathered steam elsewhere in Asia as lower prices and festive buying lifted demand for the metal. [GOL/AS]

Silver was up 0.6 percent at $18.60 an ounce, after hitting an eight-week low of $18.46 on Thursday.

Platinum was down 0.01 percent at $1,068.40, after falling to a 7-1/2-week low of $1,057. Palladium was 0.1 percent lower at $683.30.

(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Susan Thomas and Tom Brown)