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Gold gains as dollar retreats amid rising yields

NEW YORK/LONDON (Reuters) - Gold prices gained after three days of losses on Tuesday as the dollar retreated from an earlier three-month peak and U.S. equities weakened, even as benchmark U.S. Treasury yields passed 3 percent for the first time in more than four years.

A saleswoman displays a gold necklace to a customer inside a jewellery showroom in Mumbai, India April 18, 2018. REUTERS/Francis Mascarenhas

The yield on U.S. 10-year Treasury notes US10YT=RR rose above 3 percent as investors reduced their U.S. bond holdings on worries about rising inflation and growing government debt supply. [US/]

Rising yields typically make gold less attractive since it does not bear interest.

But a retreat in world stocks after yields crossed 3 percent and weakness in the U.S. dollar drew investors to gold and lifted its value, since it is priced in the greenback, said David Meger, director of metals trading at High Ridge Futures in Chicago. [FRX/] [MKTS/GLOB]

“The dollar has been a driving force as of late. We’ve been seeing a little weakness in equities today, too,” Meger said.

Spot gold XAU= gained 0.5 percent to $1,330.84 per ounce by 1:34 p.m. EDT (1734 GMT), while U.S. gold futures GCv1 for June delivery settled up $9, or 0.7 percent, at $1,333.

Gold is often seen as a safe store of value in times of elevated geopolitical or financial risk.

It has benefited in recent weeks from concerns over the U.S.-China trade dispute, sanctions on Russia and unrest in the Middle East, but has been kept in check by the prospect of further interest rate hikes from the Federal Reserve.

“Based on interest rates, prices should be lower,” said Capital Economics analyst Simona Gambarini. “But there are a lot of other factors, and a lot of tensions that have been boosting prices... we think gold will continue to trade in this range between $1,300-1,350 depending on what happens with those risks, and the Fed hiking rates.”

Autocatalyst metal palladium XPD= lost 0.5 percent to $973.65 an ounce, earlier hitting near a two-week low of $960.47. It plunged 5 percent Monday after the United States gave American customers of Russia's biggest aluminium producer Rusal more time to comply with sanctions.

Rusal owns a 28 percent stake in Norilsk Nickel GMKN.MM, the world's biggest palladium producer.

“(Palladium) has followed base metals prices on their downward trajectory now that the United States is considering lifting the sanctions against Rusal and probably will not impose further sanctions against Russia,” Commerzbank said in a note.

Platinum XPT= increased 1.6 percent to $932.10 an ounce, earlier dropping to $910.50, a 2-1/2-week low. Silver XAG= gained 1.2 percent to $16.72 an ounce after falling more than 3 percent in the previous session.

Reporting by Jan Harvey and Renita D. Young; Additional reporting by Swati Verma in Bengaluru; editing by Alexander Smith and Andrea Ricci