By Eric Onstad
LONDON (Reuters) - Gold edged lower on Thursday after strong U.S. economic data and comments by U.S. Federal Reserve Chair Janet Yellen further bolstered the case for hiking rates next month.
In other precious metals, palladium extended its outperformance over sister metal platinum.
Spot gold was down 0.2 percent at $1,223.01 an ounce at 1356 GMT, reversing course after earlier edging higher, while U.S. gold futures fell 0.1 percent to $1,222.90.
U.S. Treasury yields rebounded and the dollar index turned higher after buoyant U.S. data, including the biggest increase in U.S consumer prices in six months and jobless claims falling to a 43-year low.
Earlier in the session, gold was supported as yields dipped and the dollar index pulled back after touching a 13-1/2-year peak on Wednesday.
"The market appears to now have almost fully priced in the fact that the Fed is going to put up rates 25 basis points next month and the initial shock of the U.S. presidential election has washed through," said analyst Tom Kendall at ICBC Standard Bank in London.
Spot gold has shed about 4 percent since the U.S. election and slid 11 percent since touching a two-year peak of about $1,375 in early July.
Weighing on gold have been expectations the U.S. Federal Reserve will hike rates next month since gold is highly sensitive to interest rates.
Yellen said in prepared remarks to lawmakers that the Fed could raise U.S. interest rates "relatively soon" if economic data keeps pointing to an improving labour market and rising inflation.
Helping to cushion losses in gold, however, was a pick-up in demand in India after the withdrawal of high-denomination banknotes.
Among other precious metals, palladium rose 0.6 percent to $719.10 after touching a fresh six-week high of $723.60, while platinum slipped 1.3 percent to $931.50.
Palladium has sharply outperformed its sister metal recently with the spread between the two metals sliding to about $215 from $377 over the past two weeks.
Kendall said the weak fundamentals for platinum supported the move, highlighted in a report earlier this week from refiner Johnson Matthey which said the platinum market could return to surplus for the first time in six years in 2017.
"It's getting to the point where you think maybe things need to pause for a while, but certainly it's very hard to make a case why anyone should be preferring to invest in platinum versus palladium if they've got an investment horizon of less than a year or so," he added.
Silver dropped 0.2 percent to $16.93 an ounce.
(Reporting by Eric Onstad; Editing by Mark Trevelyan)
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