* Gold has bounced 4 pct from 5-1/2-year low
* Weak yuan may prompt Fed to be more gradual in rate hike
pace -CMC
* Coming up: U.S. retail sales at 1230 GMT
(Adds Q2 gold demand, updates prices)
By Manolo Serapio Jr
MANILA, Aug 13 (Reuters) - Gold edged lower on Thursday as
the dollar firmed, but the metal remained near a three-week peak
as a weaker Chinese yuan raised doubts about the pace of
expected interest rate hikes by the U.S. central bank.
Investors have been betting that the Federal Reserve could
raise interest rates at its next policy meeting in September
amid a recovering U.S. economy and job market, but investors are
factoring in the impact of China's surprise currency
devaluation.
"There's a feeling that the devaluation of the yuan may have
a tendency to make the Fed more cautious about its monetary
tightening," said Ric Spooner, chief market analyst at CMC
Markets in Sydney.
"While it may not stop the first one, it may very well make
them even more gradual in the pace at which they increase rates
and that would be because of potentially lower inflation being
transmitted by a weaker yuan to international markets."
Spot gold XAU= was off 0.4 percent at $1,120.80 an ounce
by 0635 GMT, after earlier peaking at $1,126.31, its loftiest
since July 20. The dollar gained 0.3 percent versus a basket of
currencies .DXY .
Bullion has recovered 4 percent from a 5-1/2-year low of
$1,077 touched in a late July selloff that was fueled by
concerns over a looming hike in U.S. interest rates.
U.S. gold for December delivery GCcv1 slipped 0.3 percent
to $1,120.40 an ounce.
China's yuan fell for a third day on Thursday but the
central bank said there is no basis for further depreciation in
the yuan currency given strong economic fundamentals.
ID:nB9N0Z405D
Still, sources told Reuters that there was some support
within the Chinese government for a devaluation of perhaps up to
10 percent to help struggling exporters. ID:nL3N10M4Q4
An adjustment to China's currency is probably appropriate if
the Chinese economy is weaker than authorities there expected,
New York Fed President William Dudley said in the U.S. central
bank's first public response to the devaluation of the yuan.
ID:nL1N10N0ZS
Gold demand hit a six-year low in the second quarter, a
World Gold Council report showed, as sluggish prices and the
prospect of better returns in equities curbed interest in the
metal. ID:nL5N10N3OI
SPDR Gold Trust GLD , the world's largest gold-backed
exchange-traded fund, said its holdings rose 0.6 percent to 21.6
million ounces on Wednesday, the first increase in days after
falling to the lowest since September 2008. GOL/ETF
Spot palladium XPD= dropped 0.4 percent to $620.25 an
ounce after hitting a two-week high of $627 earlier. Platinum
XPT= was steady at $995.25 an ounce and silver XAG= fell 0.5
percent to $15.41 per ounce.