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Gold held on to sharp overnight gains on Wednesday, buoyed by a softer dollar and Federal Reserve chairwoman Janet Yellen’s remarks that the US central bank should be cautious in raising interest rates.

Gold is highly sensitive to US monetary policy, as rising interest rates lift the opportunity cost of holding nonyielding bullion, while boosting the dollar. The metal slid 3% last week after hawkish comments from several Fed officials.

In her first comments since the Fed decided to hold rates steady two weeks ago, Ms Yellen said on Tuesday inflation had not yet proven durable against the backdrop of looming global risks to the US economy, and that the Fed should proceed only cautiously on rate hikes.

Spot gold had dipped 0.5% to $1,236/oz by 3.05am GMT, after gaining 1.7% on Tuesday.

Some profit-taking following the overnight jump in prices had taken gold lower but the metal would consolidate around $1,235-$1,240, said MKS Group trader Sam Laughlin.

However, some analysts said gold could be subject to downside risks as focus now shifted to key US jobs data due this week.

"Though the rally looks intact, it can be dented by a good employment number in the nonfarm payrolls release for March scheduled for Friday," said HSBC analyst James Steel. "A number above 200,000new net jobs could wear on gold and clip recent gains."

Tuesday, according to export data from the Hong Kong Census and Statistics Department, 42.9 tonnes of gold was shipped to mainland China, up from January’s import of only 17.9 tonnes of gold.

However, according trade data from Switzerland, imports into one of the world’s largest gold consuming nations, remain subdued as February’s shipment was the lowest for that month since 2012. Swiss export data shows that gold shipments to China totaled 27.2 tonnes last month, down from 43.4 tonnes at the start of the year.

Simona Gambarini, commodity economist at Capital Economics said total imports by China fell by 16% [year-over-year] for the first two months of the year.

However, gold’s rally since the start of the year could have created subdued demand. Gold prices were up more than 16% by the end of February, hitting its highest level in 12 months.

Reference : KITCO, Reuters