Gold at three-month low after Yellen hints at possible rate hike

Gold slid 1 percent to a three-month low on Friday, extending losses after Federal Reserve Chair Janet Yellen indicated the US central bank could raise interest rates within months if the economy continues to improve, boosting the dollar.

"The economy is continuing to improve ... growth looks to be picking up," Yellen said in remarks in Boston. "If that continues and if the labour market continues to improve, and I expect those things to occur ... in the coming months such a move would be appropriate."

The remarks lifted the US dollar index to a two-month high.

"You couldn't really say it was uber hawkish, but it keeps the door open for a July hike, and as far as gold is concerned, that means that there was a bit of a higher cost of carry in US dollar terms," said Bart Melek, head of commodity strategy for TD Securities in Toronto.

Spot gold was down 0.9 percent at USD 1,208.90 an ounce at 3:01 p.m. EDT (1901 GMT), off an earlier low of USD1,206.45, the lowest level since Feb. 22. It was on track to close the week down 3.5 percent, the biggest fall since early November and the fourth straight weekly decline after minutes of the Fed's latest policy meeting indicated last week that a rate rise may be on the cards sooner rather than later.

An increase in US rates would raise the opportunity cost of holding gold, while boosting the dollar, in which it is priced.

US gold futures for June delivery settled down 0.5 percent at USD 1,213.80 an ounce.

"Yellen reinforced the currently prevailing view that a Fed rate hike in June was clearly on the menu though perhaps not yet the blue-plate special," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

"The hurdle to a June hike remains formidable with July favoured as Brexit will then be out of the way and the committee will have seen more data."

On Thursday, Fed Governor Jerome Powell said he felt the economy was on a "solid footing" and within reach of the Fed's inflation goals.

Silver touched its lowest level in nearly six weeks at USD 16.09, and was later down 0.8 percent at USD 16.18 an ounce.

Platinum was down 1.6 percent at USD 972.24 an ounce, after touching its weakest level in over five weeks at USD 970, and was on track for its biggest weekly decline since Jan 15. Palladium was 1.2 percent lower at USD 534.05.