* U.S. retail sales, producer prices rose in September
* Fed's Yellen gives review of where recovery may fall short
* Palladium bounces up from three-month low
(Updates prices; adds comment, second byline, NEW YORK
By Marcy Nicholson and Clara Denina
NEW YORK/LONDON, Oct 14 Gold fell on Friday as
the dollar rose after U.S. economic data came in within
analysts' expectations, cementing assumptions of an interest
rate increase by the Federal Reserve by year-end.
U.S. retail sales rebounded 0.6 percent in September while
producer prices also rose broadly to record their biggest
year-on-year increase since December 2014.
The dollar gained 0.4 percent against a basket of six
Spot gold was down 0.3 percent at $1,254.26 an ounce
by 2:12 p.m. EDT (1812 GMT). U.S. gold futures settled
down 0.2 percent, at $1,255.50.
Later in the session, Federal Reserve Chair Janet Yellen
gave a broad review of where the U.S. economic recovery may
still fall short.
"While Yellen did point out some of the longer-term reasons
for keeping interest rates lower than in previous cycles, she
importantly didn't give any indication that she is opposed to
the market interpreting recent Fed communications as signaling a
rate hike is imminent this year," said Royce Mendes, director
and senior economist at CIBC Capital Markets in Toronto, adding
that the bank still expects a rate hike in December.
Earlier, Boston Fed President Eric Rosengren said that
investors were probably right in placing "very high" odds on a
U.S. interest rate increase in December.
Markets are pricing in around a 70 percent chance that the
Fed will move.
Gold is highly sensitive to increases in U.S. interest
rates, which can lift the opportunity cost of holding
"We are in the midst of one of those large Fed-related moves
- we saw an almost $100 upswing in June and July and we are now
seeing a $100 decline in September and October as markets see a
Fed rate hike coming in," ING Bank senior strategist Hamza Khan
Holdings of the SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, rose 0.28 percent to 961.57
tonnes on Thursday.
Among other precious metals, spot palladium was up
1.3 percent at $646 an ounce after touching a new three-month
low of $629.22.
"Interest by investors to buy palladium has been muted this
year; large ETF outflows are evidence of this," said UBS Wealth
Management Research in a note.
"However, we expect this trend to reverse in coming months,
sparked by greater concerns about a deeper market deficit as
industrial activity lifts further and mine supply struggles to
Silver was down 0.05 percent at $17.44, while
platinum rose 0.1 percent at $937, on track for its third
(Reporting by Marcy Nicholson; Editing by Bernadette Baum)