January 26, 2017 / 3:56 AM / 3 years ago

PRECIOUS-Gold extends losses to two-week low as dollar rises

* Higher equities undermine gold
    * SPDR ETF gold holdings fall, physical demand weak
    * Palladium extends losses to 3-week low

 (Updates prices; adds comment, second byline, NEW YORK
dateline)
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, Jan 26 (Reuters) - Gold fell to a two-week
low on Thursday as the dollar firmed and equity markets rallied,
but expectations that the greenback's climb may be coming to an
end helped limit losses. 
    Spot gold prices were down 1 percent at $1,187.93 an
ounce by 3:02 p.m. EST (2002 GMT), after tapping $1,184.03, its
lowest since Jan. 11. U.S. gold futures settled down 0.7
percent at $1,189.80. 
    A stronger U.S. currency makes dollar-denominated
commodities more expensive for holders of other currencies,
potentially curbing demand. 
    "The dollar is a little bit stronger this morning, yields
are up a bit and that's why gold is below $1,200," said Julius
Baer analyst Carsten Menke. 
    U.S. Treasury yields later weakened, but the general
strength in equities and yields have been fueled by U.S.
President Donald Trump's signals that he plans to increase
public spending. Expectations of a boost to growth have recently
had a diminishing impact on the dollar.  
    "Trump's victory has unleashed one of the strongest
expressions of business and financial optimism in history,
starkly affecting variables central to gold's short-term trading
patterns," said Sprott Asset Management.
    "Should our suspicions bear out that reigning euphoria
proves short-lived, recent market dislocations will provide
excellent entry points for a wide array of investment assets." 
    Investors abandoning gold can be seen in the holdings of
SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund, which fell 0.6 percent to 799.07 tonnes on
Wednesday. 
    Also undermining sentiment was weak physical demand in India
due to higher prices, while Chinese demand is weaker ahead of
the Lunar New Year holiday, traders said.
    Palladium slid 1 percent to $722 an ounce, after
touching a three-week low at $711.15. It fell more than 7
percent on Wednesday, its worst one-day fall since April 2013.
    "Previously, palladium had failed on three consecutive days
to exceed the psychologically important $800 per troy ounce
mark, giving rise to a more gloomy technical picture," said
Commerzbank Commodity Research in a note.
    Palladium is used in autocatalysts and has been boosted by
expectations of stronger demand for cars but the outlook for
growth is now less bright.
    "Car ownership rates in the U.S. peaked a couple of years
ago, which means most of the cars sold are just replacement
demand," Menke said. "China has cut car subsidies so sales there
will probably be lower this year."    
    Spot silver fell 0.9 percent to $16.79 an ounce,
while platinum inched up 0.08 percent to $978.50.

 (Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by Susan Fenton and Tom Brown)
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