By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON (Reuters) - Gold rose as the dollar came off its highs on Wednesday, shrugging off earlier pressure from stronger-than-forecast U.S. inflation and retail sales that added to expectations for near-term U.S. interest rate rises.
U.S. Federal Reserve Chair Janet Yellen said on Tuesday that delaying increases could leave the Fed's policymaking committee behind the curve. On Wednesday, Philadelphia Fed President Patrick Harker repeated his view that the central bank should continue to raise interest rates this year.
Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
Spot gold was up 0.2 percent at $1,231.06 an ounce by 3:14 p.m. EST (2014 GMT).
"Given all that news about rates, the market has pretty much shrugged that off. I think the market could easily absorb a quarter-point hike," said Bill O'Neill, co-founder of LOGIC Advisors.
"You're starting to see some of the big fund players come back into the market."
The dollar index was flat as investors took profits after it reached a one-month high early in the session against a basket of currencies, retreating as Yellen offered no additional insight on the timing of the central bank's next rate hike. [FRX/]
"Yellen has highlighted a lot of risks around the Trump presidency, but nevertheless her foot is firmly poised over the accelerator," said Oxford Economics analyst Daniel Smith.
The world's largest physically-backed gold fund, SPDR Gold Shares, has seen inflows of 18 tonnes so far this year, well below the pace of increases a year ago.
"Against soft physical demand for gold, the market remains fixated on the U.S., for now," said Suki Cooper, precious metals analyst for Standard Chartered, in a note.
"Heightened geopolitical uncertainty has spurred fresh safe-haven demand, but the market refocusing on U.S. interest rates will test the 'stickiness' of recent investor inflows."
Regulatory filings showed late Tuesday that Paulson & Co cut its stake in gold while Soros Fund Management LLC got out of gold in the fourth quarter of 2016.
U.S. gold futures for April delivery settled up 0.6 percent at $1,233.10.
Among other precious metals, palladium was up 0.9 pct at $786.15 an ounce, after rising to a three-week high at $791.20, bucking the falling trend among other precious metals to rise in line with other cyclical assets.
Spot silver was down 0.05 percent at $17.94, while platinum was down 0.2 percent at $1,002.05.
(Additional reporting by Arpan Varghese and Nallur Sethuraman in Bengaluru; editing by Alexander Smith and Diane Craft)