August 17, 2017 / 9:34 AM / 10 months ago

PRECIOUS-Gold rises on Fed caution, palladium hits 16-year peak

    * U.S. Fed hints at slower interest rate rises
    * Trump disbands advisory councils, knocking confidence
    * Gold supported by ETF inflows
    * Technical resistance at 1,296.30
    * Palladium gains on industrial metals rally

 (Updates prices)
    By Peter Hobson
    LONDON, Aug 17 (Reuters) - Gold rose for a second day on
Thursday after Federal Reserve officials hinted that U.S.
interest rates could rise more slowly than expected, while
palladium was lifted to a 16-year high by strong industrial
metals markets.
    The minutes of the Fed's July 25-26 policy meeting showed
some policymakers wished to halt further rate increases until it
is clear the trend of soft inflation is transitory.             
    Gold is sensitive to rising interest rates because they push
up bond yields, raising the opportunity cost of holding
non-yielding bullion, and tend to strengthen the dollar, in
which gold is priced. 
    The dollar and bond yields fell after the minutes were
released but have recouped some losses.                   
            
    Spot gold        was up 0.2 percent at $1,284.68 an ounce at
1345 GMT after rising 0.9 percent the previous day. 
    U.S. gold futures         for December delivery gained 0.6
percent to $1,290.60 an ounce.
    Commerzbank analyst Carsten Fritsch said U.S. President
Donald Trump's decision to disband two high-profile business
advisory councils also helped gold because it shook confidence
in Trump's ability to enact economic stimulus, lowering
expectations of rate rises.             
    Demand for gold as a safe haven also resurfaced after South
Korea warned North Korea against "crossing a red line" and the
United States said it would go ahead with joint military drills
despite pressure from China, Fritsch said.             
    "Gold is likely to breach USD 1,300/oz as the market prices
in a less hawkish Fed, particularly in a risk-off environment,"
analysts at Standard Chartered said in a note. 
    But Fritsch said gold would struggle to rise above $1,295
after failing three times this year. "Speculative long positions
are at quite high levels," he said. "If we fail again here this
could provoke a correction."
    Gold has been supported by physical buying, with holdings in
the largest gold-backed exchange-traded-fund, New York's SPDR
Gold Trust, 275,663 ounces, or 1.1 percent, higher on Wednesday
than Friday's levels.      
    Technical resistance was at the June high of $1,296.30 with
Fibonacci support at $1,261.30, said analysts at ScotiaMocatta.
    Palladium        surged 1.5 percent to $927.75 an ounce
after touching $929.50, the highest since February 2001. 
    The metal, used in the auto industry for
emissions-controlling catalytic converters, was being carried
higher by a strong rally in industrial metals such as copper and
aluminium this week, said Dominic Schnider at UBS Wealth
Management in Hong Kong.        
    Silver        added 0.1 percent to $17.10 an ounce and
platinum        was down 0.3 percent at $974 an ounce.    

 (Additional reporting by Apeksha Nair and Arpan Varghese in
Bengaluru, and Eric Onstad in London; editing by David Evans and
Alexander Smith)
  
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