January 2, 2018 / 3:21 PM / a year ago

PRECIOUS-Gold prices extend rally as palladium touches record high

    * Dollar starts 2018 on back foot, still boosting gold
    * Spot gold chart shows overbought conditions-technicals
    * Palladium hits record after 56 pct rally in 2017

 (Updates prices, comment; adds byline, NEW YORK dateline)
    By Chris Prentice and Jan Harvey
    NEW YORK/LONDON, Jan 2 (Reuters) - Gold extended its rally
into the new year on Tuesday, touching late September highs on a
softer U.S. dollar, while spot palladium jumped to a record on
fears of short supplies after soaring 57 percent in 2017.
    Spot gold        was up 1 percent at $1,315.11 per ounce at
2:36 p.m. EST (1936 GMT) after hitting $1,315.46, the highest
since Sept. 20, 2017. Gold has risen each trading session since
Dec. 15. 
     U.S. gold futures for February delivery        settled up
$6.80, or 0.52 percent, at $1,316.10 per ounce. 
    The dollar index        fell to a more than three-month low
on expectations of a slower pace of interest rate hikes by the
U.S. Federal Reserve.        
    The greenback posted its biggest annual drop since 2003 in
2017, helping to lift gold to an annual increase of more than 13
percent. Bullion surged $55 an ounce in the last three weeks of
2017 alone. 
    Global markets received a boost on Tuesday from gains in
U.S. equities and surprisingly upbeat Chinese manufacturing
data.            
    "(Gold's) rally has been part and parcel with the weaker
dollar," said Rob Haworth, senior investment strategist at U.S.
Bank Wealth Management in Seattle. 
    "The tax plan seems to have changed the tenor and trend of
the market," he added, referring to the Republican tax overhaul
expected to balloon the U.S. budget deficit.
    Technical analysts warned that gold's rally is looking
overdone.
    Key factors for the bullion market this year will be how
quickly central banks normalize interest rates, how much further
the equities rally goes, the longer-term impact of U.S. tax
reforms, and when inflation will pick up, Mitsubishi analyst
Jonathan Butler said. 
    Gold is highly sensitive to rising U.S. interest rates
because it increases the opportunity cost of holding
non-yielding bullion, while boosting the dollar, in which it is
priced.
    Palladium        jumped 3.12 percent to $1,094.10 per ounce.
   Prices rose to $1,096.50, surpassing a previous record set in
January 2001. Palladium was the stand-out performer among major
precious metals last year, jumping 57 percent to hit a series of
multiyear highs. 
    "Palladium continues to rally on real demand and supply
tightness," Miguel Perez-Santalla, vice president of Heraeus
Metal Management in New York, said in a market note.  
    Among other precious metals, spot silver        was up 1.4
percent at $17.184. Platinum        was 1.70 percent higher at
$941.50 per ounce.

    
 (Additional reporting by Nallur Sethuraman in Bengaluru;
editing by Jason Neely, Adrian Croft and Jeffrey Benkoe)
  
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