Gold steadies as dollar, U.S. bonds yields pare gains

By Marcy Nicholson and Peter Hobson

NEW YORK/LONDON (Reuters) - Gold steadied on Thursday, giving up earlier losses as the dollar and U.S. bond yields pared gains, following earlier pressure from strong U.S. economic data and support from Federal Reserve Chair Janet Yellen for higher U.S. interest rates.

Spot gold turned up 0.1 percent to $1,205.14 an ounce by 2:58 p.m. EST (1958 GMT), having dropped by 1.1 percent in the previous session, its biggest fall since Dec. 15.

U.S. gold futures settled down 0.9 percent at $1,201.50.

Better than expected jobs and housing data reinforced the view that the U.S. economy is sufficiently robust to warrant rate rises, turning back recent falls for the dollar and pushing 10-year bond yields to their highest since Jan. 3.[MKTS/GLOB]

A strong dollar makes gold more expensive for holders of other currencies. [USD/]

Higher interest rates also mean that bond prices fall and yields rise, making such investments more attractive to those looking for safe-haven assets. Although gold is such an asset, it does not offer a yield to investors and costs money to store and insure. [US/]

"It looks like the dollar's rise is back on," said Georgette Boele at ABN AMRO. "If you have a higher dollar combined with higher U.S. treasury yields, that's not a good combination for gold prices."

Yellen will speak at 8 p.m. EST (0100 GMT) on Thursday, about the economic outlook and monetary policy.

Investors also were looking ahead to the inauguration on Friday of President-elect Donald Trump, who has mixed promises of tax cuts and infrastructure spending with protectionist statements that have increased demand for gold as a safe haven.

Analysts said that gold's wobble could signal the end of a rally that had lifted the metal by around 8 percent from a mid-December low to an eight-week high of $1,218.64 on Tuesday.

"Although we expect the U.S. Federal Reserve to hike interest rates twice this year, a more meaningful increase in U.S. inflation should push real interest rates deeper into negative territory," UBS Wealth Management Research said in a note, adding its six-month forecast for gold prices is $1,300.

"Precious metals that are linked to industrial application demand, like silver, platinum, and palladium, should outperform gold."

In other precious metals, silver was 0.14 percent lower at $16.99 an ounce, platinum eased by 0.6 percent at $956 and palladium was up 0.09 percent at $749.

(Additional reporting By Nallur Sethuraman in Bengaluru; Editing by David Evans and Bill Trott)