January 10, 2018 / 2:38 PM / a month ago

PRECIOUS-Gold jumps on report China may slow U.S. Treasury buys

    * Dollar index drops sharply after China news
    * Drop in U.S. unit helps gold shrug off rise in bond yields
    * GRAPHIC-2018 asset returns: tmsnrt.rs/2jvdmXl

 (New throughout, updates prices, market activity and comments,
adds second byline and NEW YORK dateline)
    By Renita D. Young and Jan Harvey
    NEW YORK/LONDON, Jan 10 (Reuters) - Gold rose on Wednesday,
hitting its highest in nearly four months as the dollar swooned
after a report that Chinese officials had recommended slowing or
halting purchases of U.S. Treasury securities.
    The dollar, already under pressure versus the Japanese yen
after the Bank of Japan moved to trim its long-dated government
bond purchases this week, was on track to post its biggest
single-day drop against the yen in seven weeks. The greenback
also lost ground against a basket of major currencies.       
    Spot gold        was up 0.5 percent at $1,318.67 an ounce by
1:41 p.m. EST (1841 GMT). Its session high of $1,326.56 was its
highest since Sept. 15. U.S. gold futures        for February
delivery settled up $5.60, or 0.4 percent, at $1,319.30 per
ounce. 
    U.S. Treasury yields jumped to 10-month highs after
Bloomberg News reported that Chinese officials have recommended
the country slow or halt its purchases of the U.S. bonds.
             Rising Treasury yields can pressure prices for
gold, but the dollar's slide helped gold shrug off the impact.
                   
    The report "added pressure on the U.S. dollar and helped
gold," said Bart Melek, head of commodity strategy at TD
Securities in Toronto. "Gold did better, despite the fact that
the yields across the curve moved higher," he said.
    "With bond yields going up so steadily and looking like
they’re going higher that could be a bit of a headwind given the
fact that gold is a non interest-bearing asset," said Bill
O’Neill, partner, co-founder of LOGIC Advisors in Upper Saddle
River, New Jersey.
    A possible slow-down or halt to China purchasing U.S.
Treasury yields could have significant repercussions, ONADA said
in a note.
    "The tightening effect of such measures would likely have an
impact on how many times the Federal Reserve raises interest
rates this year, which is why we've seen a corresponding drop in
the dollar," OANDA said.
    Among other metals, palladium        dropped 1.5 percent at
$1,083.97 an ounce, after hitting a record high on Tuesday at
$1,111.40. Tightening emissions standards and a switch away from
diesel cars to more palladium-heavy gasoline models has shored
up demand expectations for the autocatalyst metal. 
    Platinum        was up 0.9 percent at $973.60 an ounce,
after hitting a nearly four-month high of $973.90.
    Silver        was up 0.4 percent at $17.01 an ounce, after
earlier drifting to $16.86, its lowest since Dec. 29. 

 (Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by David Gregorio, Jane Merriman and David Evans)
  
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