Gold slips from 8-week highs as dollar regains poise

By Jan Harvey

LONDON (Reuters) - Gold retreated on Wednesday from the previous day's eight-week high, as a rebound in the dollar ahead of U.S. inflation data and a speech by Federal Reserve chair Janet Yellen prompted some buyers to cash in gains.

The metal peaked at $1,218.64 an ounce on Tuesday as the dollar index slid to a four-week low, hurt by U.S. president-elect Donald Trump's claim that the U.S. currency's strength against the yuan "is killing us", and as a soothing speech on Brexit from UK Prime Minister Theresa May sparked a surge in the pound.

It struggled to maintain those gains as the dollar index recovered some lost ground on Wednesday, however. [FRX/]

Spot gold was down 0.3 percent at $1,212.50 an ounce at 1041 GMT, while U.S. gold futures for February delivery were down 60 cents an ounce at $1,212.30.

"It is normal that prices take a breather after the strong gains we witnessed over the past few days," Commerzbank analyst Carsten Fritsch said.

"All in all the sentiment for gold has clearly improved. The U.S. dollar rally has run out of steam, bond yields are coming down, inflation is picking up, political uncertainty is rising. Without any clear hint from Trump regarding his tax cuts and spending plans, and (if we have) more comments towards protectionism, gold can rise further."

Trump's campaign calls for tax cuts and infrastructure spending boosted U.S. shares and the dollar after the election, while driving a sell-off in Treasuries. As yields rose, gold slid to its lowest in February.

However, his protectionist statements and lack of detail on policy have since led some investors to opt for gold, often seen as a hedge against uncertainty in the wider markets.

Chinese President Xi Jinping offered a vigorous defence of globalisation on Tuesday, pushing back against the "America First" rhetoric of Trump and signalling Beijing's desire to play a bigger role on the global stage.

"The extent to which globalization retreats, and the mood and sentiment coming out of Davos, may impact gold," HSBC said in a note. "Clearly there is enough investor concern to send gold higher.., but (it) has come a long way fast, and we may need a period of consolidation before trading higher."

Traders are awaiting U.S. consumer inflation data at 1330 GMT and a speech by Fed chair Janet Yellen on interest rate policy to give fresh direction to the dollar, and to gold.

Silver was down 0.2 percent to $17.13 an ounce, while platinum was 0.5 percent lower at $969.90 an ounce and palladium was down 0.3 percent at $745.60.

(Additional reporting By Nallur Sethuraman in Bengaluru; Editing by Elaine Hardcastle)