July 16, 2018 / 9:42 AM / 5 months ago

PRECIOUS-Gold steadies, higher U.S. rates expected to weigh

    * Investors cut physical holdings of gold
    * Cost of holding gold rises with higher U.S. rates

 (Updates prices)
    By Pratima Desai
    LONDON, July 16 (Reuters) - Gold steadied on Monday as the
dollar slipped, but higher interest rates in the United States
weighing on investor demand and a weak physical market are
expected to pressure prices of the precious metal.
    Spot gold        was up 0.2 percent at $1,243.07 an ounce at
1201 GMT, after marking the lowest since Dec. 12 at $1,236.58 on
Friday. U.S. gold futures         were 0.2 percent higher at
$1,243.5 an ounce.
    A lower U.S. currency makes dollar-denominated gold cheaper
for holders of other currencies, which could boost demand.
    The Federal Reserve last month raised its benchmark
overnight lending rate 25 basis points to 1.75-2.0 percent.
Expectations are for another two rate rises this year and three
in 2019.        
    Gold does not earn any interest or dividends and costs money
to store and insure.
    "While interest rates were zero there was no real cost to
holding gold, it was just like holding cash, now there is a
cost," said Matthew Turner, analyst at Macquarie.
    "The lack of big compelling themes is a problem for gold,
prices are very high compared to where they were before the GFC
(great financial crisis) and investor demand isn't there."
    The financial crisis escalated after U.S. investment bank
Lehman Brothers filed for bankruptcy in Sept. 2008 when gold
prices were around $900 an ounce. 
    Investors retreating from gold can be seen in the largest
gold-backed exchange-traded-fund (ETF), New York's SPDR Gold
Trust      , which has seen its holdings fall more than 8
percent since late April to below 26 million ounces.
               
    Physical market demand in top consuming countries China and
India is also weak, analysts say. 
    India's gold imports fell for a sixth month in June to 44
tonnes as a drop in the rupee lifted local prices to a near
21-month high, curtailing demand.             
    "Indian and China retail consumption has been hindered by
depreciating local FX," Citi analysts said in a note.
    "Investors may favor gold again, especially if trade
friction rises further and becomes a more sizable threat to
economic growth and to the decade long equity market bull run."
    Silver        was down 0.1 percent at $15.77 an ounce, after
hitting a seven-month low at $15.67 on Friday. 
    Palladium        was unchanged $937.00 and platinum       
slipped 0.1 percent to $824.8 an ounce.
    "Platinum market fundamentals are expected to remain
structurally bearish during the second half of 2018," Citi
analysts said. 
    "Platinum mine producers, primarily South African, are
performing strongly and expected to continue to do so. We also
expect rising supply from autocatalyst scrap in 2018 and 2019."

 (Additional reporting by Apeksha Nair in Bengaluru; editing by
Adrian Croft and Louise Heavens)
  
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