Gold inched lower on Wednesday as equity markets rallied after the new Federal Reserve chief painted an optimistic economic outlook that whetted investor risk appetite.
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In her first public comments since becoming Fed chair, Janet Yellen said the central bank would consider more than the unemployment rate when evaluating the condition of the U.S. labour market, broadening the scope of her predecessor's forward guidance on monetary policy.
"If you look at the wider economic picture in the United States and not only at the nonfarm payrolls, that still looks good and it is likely to improve over the next few months," Natixis analyst Bernard Dahdah said.
"From that perspective, we are expecting to see the price of gold heading back down as there will be no incentives for investors."
Spot gold was down 0.1 percent to $1,290.14 an ounce by 1305 GMT, snapping a three-day winning streak. It closed up 1.3 percent in the previous session.
U.S. gold futures for February delivery were unchanged at $1,290.10 an ounce.
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Strong technical buying sent gold to a three-month high of $1,293.44 an ounce on Tuesday, making it rally at the same time as equities. But as stock markets continued to add to gains on Wednesday, the metal lost ground.
Gold usually holds an inverse relation with the direction of shares, as risk appetite detracts interest from the metal, regarded as a safe haven.
From a technical viewpoint, a confirmed close above the $1,290/$1,300 area could signal further gains, while support is pegged at $1,278, analysts said.
"Any attempt at the $1,300 psychological mark is likely to meet resistance and attract those who have been waiting for more attractive levels to close out longs or initiate shorts," UBS said in a note.
"...Hints from the Fed Chairwoman yesterday, which were broadly in line with expectations, confirm that the status quo remains intact and as such, nothing has really changed for gold from a macro perspective."
In other markets, the dollar index pulled away from two-week lows, while European shares rose, following a rally in Asian markets after upbeat trade data from China.
Gold has gained around 7 percent since the beginning of the year, propped up by emerging market jitters and concerns over economic growth in China. It had fallen 28 percent in 2013, snapping a 12-year run of gains, as the Fed looked set to unwind its bond-buying stimulus, which had supported prices.
Investors have been cautiously moving back into the precious metal as seen in flows into SPDR Gold Trust, the world's largest gold-backed exchange-traded fund.
Holdings in the ETF rose 1.80 tonnes to 798.85 tonnes on Tuesday. The fund, which lost around 500 tonnes in 2013, has not seen any outflows in three weeks.
Physical buying from China, the world's top bullion consumer, where demand has been robust due to the Lunar New Year holiday, could ease after the recent rally in prices, analysts said.
Premiums for the 99.99 percent purity gold contract , the most active contract on the exchange, stayed steady near $7 an ounce over the London spot price.
Silver rose 0.1 percent to $20.25 an ounce.
Platinum was trading up 1.2 percent at $1,397.25 an ounce, while palladium gained 0.8 percent to $720.25 an ounce.