Gold eases, but holds near 2-week high on Fed rate caution

Gold bullion bars and coins.
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Gold bullion bars and coins.

Gold inched lower on Tuesday, as investors turned cautious after the metal failed to sustain a recent rally, though it held near the previous day's two-week high after the Federal Reserve further dampened speculation about an imminent U.S. rate rise.

The consolidative session came after Federal Reserve chair Janet Yellen gave a largely upbeat outlook for the U.S. economy on Monday and said interest rate increases were coming. Investors, however, focused on her lack of guidance about when they would materialize.

Spot gold was down 0.12 percent at $1,243.36 an ounce, while U.S. gold futures for August delivery settled down 40 cents at $1,247 an ounce. Spot gold hit its highest since May 24 on Monday at $1,248.40.

"We still have a lot of uncertainty out there and I think gold is a well bid market, so dips are going to be bought," said Bill O'Neill, co-founder of commodities investment firm Logic Advisors.

"There isn't going to be a lot of aggressive selling, so there's bit of a vacuum of selling."

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which the metal is priced.

After sliding 6 percent in May after Fed officials struck a more hawkish tone on rates, gold has risen about 2.4 percent so far this month as expectations for a summer rate rise faded.

"Yellen was pretty non-committal - she didn't give a time frame for rate rises," Societe Generale analyst Robin Bhar said.

Almost ruling out the possibility of a rate rise at the Fed's meeting next week, two top U.S. central bankers, Dennis Lockhart and James Bullard, continued to support the prospects of a rate increase soon after.

"There doesn't seem to be any reason to sell gold over the next few weeks," ICBC Standard Bank analyst Tom Kendall said.

"The main reason feeds back into the fact the U.S. dollar is going to be traveling lower because the probability of an imminent U.S. rate increase has decreased and because the U.S. economy is not growing as strongly as people thought."

Meanwhile, world stocks advanced while the U.S. dollar was near a four-week low against a basket of currencies.

Holdings in the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, fell slightly on Monday.

Among other precious metals, silver futures were down 0.22 percent at $16.41 an ounce, platinum futures were up 0.3 percent to $999.40 and palladium futures were 0.87 percent lower at $552.15.