Gold extended gains to trade near its highest in a week on Wednesday, supported by a softer dollar, but rising bond yields and uncertainty over the timing of a possible US rate hike kept the rally in check. Spot gold rose 0.2 percent to $1,195.20 an ounce by 0657 GMT, not too far from a one-week top of $1,196.60 reached on Tuesday. The near 1-percent gain in prices in the previous session was triggered by safe-haven bids as the dollar fell and stocks took a hit from volatility in global bond markets.
German bond yields climbed on Tuesday on optimism that inflation may have bottomed in the euro zone, lifting demand for the euro. US 10-year Treasury yields hit six-month highs before steadying. "The question facing gold is will bullion derive more upwards thrust from a weaker dollar or will rising yields sap and possibly reverse the rally?" said HSBC analyst James Steel.