Gold slips after Yellen says Fed needs gradual rate hikes

By Renita D. Young and Zandi Shabalala

NEW YORK/LONDON (Reuters) - Spot gold dipped more than 1 percent after Federal Reserve Chair Janet Yellen said the central bank needed to continue gradual rate hikes, despite weak inflation.

"[This] is not what the market expected. We expected emergency accommodation with the very large debt that we're facing," said George Gero, managing director of RBC Wealth Management in New York, referring to Yellen's statement that pressured gold prices.

Spot gold was down 1.13 percent at $1,295.28 per ounce by 3:27 p.m. EDT (1927 GMT), while U.S. gold futures for December delivery settled down 0.75 percent at $1,301.70.

Gold is highly sensitive to interest rates and returns on other assets, as rising rates lift the opportunity cost of holding non-yielding bullion.

"A little recovery in (U.S. Treasury) yields, along with a stronger dollar has pressured gold. And the risk-averse trading from yesterday is easing off," said James Steel, chief metals analyst at HSBC Securities in New York.

The U.S. dollar index rose around 0.3 percent against a basket of currencies, making commodities including gold more expensive for holders of other currencies.

This came after the metal rose to a one-week high at $1,313.54 earlier in the session, extending gains after rising tensions between North Korea and the United States buoyed prices on Monday.

Bullion is used as an alternative investment during times of political and financial uncertainty.

U.S. President Donald Trump warned North Korea on Tuesday that any U.S. military option would be "devastating" for Pyongyang, but said the use of force was not Washington's first option to deal with the North's ballistic and nuclear weapons program.

Political uncertainty pushed down a gauge of world stocks . [MKTS/GLOB]

In physical demand, China's net gold imports via main conduit Hong Kong plunged 55 percent in August from the previous month, data showed.

Meanwhile, silver was down 2.04 percent at $16.83 per ounce, after dropping to $16.76 per ounce, its lowest since Aug. 25.

Platinum was down 1.58 percent at $925.30 per ounce, after reaching $918.75, the lowest since July 28.

Palladium was up 0.62 percent at $916.05 per ounce.

(Additional reporting by Nithin Prasad and Arpan Varghese in Bengaluru; Editing by Mark Potter and Andrew Hay)