NEW YORK/LONDON (Reuters) - Gold retreated on Wednesday from the previous day's eight-week high as data showing the biggest pick-up in U.S. consumer prices in 2-1/2 years lifted the dollar and U.S. Treasury yields.
Moves were muted however as the markets awaited a speech by Federal Reserve chair Janet Yellen later in the session, which will be closely watched for clues on U.S. monetary policy.
Spot gold <XAU=> was down 0.6 percent at $1,209.34 an ounce by 2:45 p.m. EST (1945 GMT), after hitting its highest since mid-November on Tuesday.
U.S. gold futures <GCv1> for February delivery settled down 0.07 percent at $1,212.10.
The U.S. Labor Department said on Wednesday its Consumer Price Index rose 0.3 percent last month and 2.1 percent in the 12 months through December, the biggest year-on-year gain since June 2014.
"We expect a lot more aggressive rate hikes from the Fed in response to already rising inflationary pressures," Capital Economics analyst Simona Gambarini said.
"Possibly there will be even stronger inflation due to Trump's policies -- it very much depends on what gets implemented at a fiscal level."
Higher rates would weigh on gold, she said. The metal is highly sensitive to rising interest rates, as these increase the opportunity cost of holding non-yielding bullion.
"We got a little bit of pressure from the dollar. The market's looking for direction," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago.
Gold prices extended losses after the Federal Reserve's latest Beige Book pointed to a jump in manufacturing and tight labor markets showing U.S. economic health.
"Federal Reserve officials are looking to get in a handful of rate hikes this year, and according to the Beige Book the economy is on track to warrant them," said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto.
Still, uncertainty over Trump's policies ahead of his swearing-in on Friday is keeping the metal underpinned.
"At the moment, the market is driven by uncertainty," Gambarini said. "We've seen a rally on the back of the upcoming inauguration date for Trump. People are getting increasingly concerned about what will be implemented."
Trump's protectionist statements and a lack of detail on policy have led some investors to opt for gold, often seen as a hedge against uncertainty in the wider markets, since its post-election slide.
Silver <XAG=> turned down 0.1 percent to $17.14 an ounce, after rising to a two-month high at $17.33.
Platinum <XPT=> was 1.3 percent lower at $961.49 and palladium <XPD=> was up 0.2 percent at $749.30.
(Additional reporting By Nallur Sethuraman in Bengaluru; Editing by Ruth Pitchford and Tom Brown)