Gold fell on Tuesday as the dollar advanced after US Federal Reserve Chair Janet Yellen said the central bank will likely need to raise interest rates at an upcoming meeting with the economy expanding further. The Federal Reserve chair struck a more hawkish tone than investors had expected, although she did flag considerable uncertainty over economic policy under the new Trump administration.
US President Donald Trump's national security adviser Michael Flynn resigned on Tuesday over revelations that he had discussed US sanctions against Moscow with the Russian ambassador before Trump took office. "Yellen is trying to nudge the expectations for a rate hike in March higher. This doesn't mean they will move in March, but the Fed wants to have the option to move," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange Inc.
Gold is highly sensitive to climbing US interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Spot gold fell 0.2 percent to $1,222.60 an ounce by 1545 GMT, while US gold futures dropped 0.2 percent to $1,223.80. The dollar index reached a three-week peak following Yellen's prepared remarks before the Senate Banking Committee.
Ahead of the testimony, a hawkish central banker said the Fed will likely have to raise rates faster than financial markets currently expect given any new policies by the Trump administration, while uncertain, will force the central bank's hand.
On the upside for gold, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.49 percent to 840.87 tonnes on Monday. "(This) will be a year littered with political and economic minefields and we do not see a scenario where gold will experience a major sell-off back to the late 2016/early 2017 lows," INTL FCStone analyst Edward Meir said.
Gold has rallied nearly 10 percent since touching 10-month lows in December. In other precious metals, spot silver fell 0.1 percent to $17.77, having hit its highest since November 11 above $18 earlier. Platinum was flat at $992.99.Palladium gained 0.2 percent to $775.35, having hit a two-week high hit on Monday.