Gold has reversed directions in the Thursday session and posted small losses. In North American trade, spot gold is trading at $1217.85 per ounce. In economic news, PPI posted a weak gain of 0.1%, above the forecast of 0.0%. Unemployment claims ticked lower to 247 thousand, above the estimate of 245 thousand. On Friday, the US releases CPI and retail sales numbers, so we could see some movement from gold prices in the North American session.

Janet Yellen’s testimony on Capitol Hill was a non-event, and her testimony before a Senate Committee on Thursday will likely be more of the same. Yellen’s cautious message didn’t veer from what the markets have already heard from other Fed policy makers. Yellen reiterated that the Fed planned to raise rates "gradually", and added that the Fed would begin trimming its balance sheet before the end of the year. The Fed chair didn’t provide any timelines, but many analysts are circling September for a balance sheet reduction, with a rate hike to follow in December. However, despite Yellen’s assurances, the markets remain lukewarm about a rate hike before the end of the year. Investors are concerned that the US economy has slowed down in 2017 and may not need another rate hike. In her testimony, Yellen reiterated said that she believes the factors weighing on inflation are temporary. However, she acknowledged that with inflation well below the Fed’s target of 2%, adding that there could be more going on there". For their part, the markets remain skeptical about a rate hike. The CME Group has pegged a December rate increase at just 47%, while other forecasts are pointing to odds as low as 40%. Hints from the Fed will not suffice to bring investors on board – unless growth and inflation numbers move higher, the markets are likely to remain lukewarm about the likelihood of a third rate hike in 2017.

With global economic conditions improving, major central banks are looking at tightening policy. The Fed is looking at a rate hike in December, while the BoE and ECB are both considering tightening policy. On Wednesday, the Bank of Canada raised rates by 25 basis points to 0.75%, the first rate increase in 7 years. One notable exception is the Bank of Japan, which has no plans to withdraw from its aggressive stimulus program. Still, the trend towards tightening could have significant ramifications for gold prices, as the metal is inversely linked to interest rate moves. Both the euro and the pound recorded sharp rallies in June, sparked by comments from the heads of the ECB and BoE. These developments show that investors are closely monitoring comments from central bankers, and any hints of tighter policy could send gold prices lower. Gold prices are down 4.0% since June 1, and if investors’ appetite for risk continues to grow, gold prices could head below the $1200 level.

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