Gold rises as United States dollar gives up gains; U.S. rates in focus

Gold prices saw a good rally in 2016 climbing 8% but jewellery demand was at a seven-year low

But the prospect of a higher dollar and U.S. Treasury yields after U.S. Federal Reserve Chair Janet Yellen said that U.S. interest rates may need to be raised in March pushed gold to $1,216.41 on Wednesday, its lowest since February 3.

April gold GCJ7, +0.46% tacked on $6.00, or 0.5%, to $1,239.10.

USA retail sales rose more than expected in January and consumer prices recorded their biggest gain in almost four years, boosting prospects of an interest rate increase from the Fed next month.

Janet Yellen, the chair of the Federal Reserve, said on Tuesday, February 14, that the United States economy could likely be on a growth path and that the Fed could increase interest rates as early as its next meeting.

Philadelphia Fed President Patrick Harker and Boston Fed President Eric Rosenberg further fueled expectations of a rate hike sooner rather later, as they both said they see at least three-rate hikes this year.

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The gold and silver markets sold off a bit following Yellen's comments Wednesday, which were deemed a bit hawkish on US monetary policy.

The dollar index was flat at 101.25, near a 3-1/2-week high of 101.38 hit on Tuesday following Yellen's remarks. Oil prices are back in a sideways trading range that has bound that market for weeks. At 4:13pm GMT, the Brent front month futures contract was down 0.72% or 40 cents at $55.35 per barrel, while the West Texas Intermediate (WTI) was 0.43% or 23 cents lower at $52.88 per barrel.

"Investors should be watching closely for action in the dollar and ten-year treasury yields, as they both seem to move the price of gold every step of the way", notes Walter Pehowich, vice president of investor services at Dillon Gage Metals. "Currently, the price of gold is trading below the most recent support level at $1,228 and approaching a double-bottom in the charts at $1,222".

March silver bulls have the overall near-term technical advantage. First resistance is seen at $1,225.00 and then at this week's high of $1,236.00. The next downside price breakout objective for the bears is closing prices below solid support at $17.00.