Yellen's case for rate hike boosts dollar; stocks surrender gains

Gold prices climbed above $1,340 per ounce on Friday afternoon in London after the dollar softened on the lack on the lack of a clear signal from Fed chair Janet Yellen about whether the USA central bank will raise rates in September.

The greenback gained as Yellen said said the case to raise interest rates is getting stronger as the US economy approaches the central bank's goals in a speech in Jackson Hole, Wyoming.

Recent comments from other Fed officials have raised expectations of a USA rate hike this year, though markets are not fully pricing one in until 2017. Yellen is scheduled to address a meeting of central bankers in Jackson Hole, Wyoming, at 1400 GMT. "There is a chance that Yellen could decide that a stronger signal about near-term policy would now be appropriate in light of diminished risks globally and an improved USA labour market", HSBC said in a note.

"The overall takeaway, not just from Yellen but for the week, is that all the Fed officials - the voter and no-voter alike - have all taken a hawkish bent".

In a mid-day interview on CNBC, the Fed's No. 2 policymaker, Vice Chair Stanley Fischer, suggested that rate hikes were on track for this year. Gold is highly sensitive to rising USA interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The dollar was last up 0.75 percent at $95.492 versus a basket of major currencies.

With the dollar's advance, oil prices turned marginally lower despite reports of Yemeni missiles hitting Saudi Arabia's oil facilities.

West Texas Intermediate (WTI) crude dipped slightly to $47.31 per barrel.

The Dow Jones industrial average .DJI fell 101.63 points, or 0.55 percent, to 18,346.78, the S&P 500 .SPX lost 10.88 points, or 0.5 percent, to 2,161.59 and the Nasdaq Composite .IXIC dropped 16.22 points, or 0.31 percent, to 5,195.98.

"Yellen's highly anticipated remarks at Jackson Hole had a hawkish tilt. although with the usual caveats that the timing will be based on how the data unfold", said Avery Shenfeld, chief economist for CIBC Capital Markets. The pan-European STOXX 600 closed up 0.56%.

Euro zone government bond yields, including Germany's 10-year bond DE10YT=TWEB , fell.

US Treasuries extended price gains as investors saw the Fed as unlikely to raise rates at its September meeting, with yields on the 30-year bonds falling to 2.22%.

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