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PRECIOUS-Gold falls as dollar rises, investors retreat

Published 21/12/2016, 02:01 am
© Reuters.  PRECIOUS-Gold falls as dollar rises, investors retreat
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* SPDR gold holdings fall more than 13 pct since Nov. 9

* Cheaper U.S. Treasuries a negative for gold

* Indian budget will be critical for gold -analysts (Updates prices)

By Pratima Desai and Swati Verma

LONDON, Dec 20 (Reuters) - Gold fell on Tuesday as the dollar rose and investors sold on expectations of stronger global economic growth and higher U.S. interest rates, while deadly incidents in Turkey and Germany failed to spur safe-haven buying.

Spot gold XAU= fell 1 percent to $1,126.65 an ounce at 1452 GMT. Last week it fell to $1,122.35, its lowest since early February. U.S. gold futures GCcv1 slipped 1 percent to $1,131.1 an ounce.

The dollar was trading near 14-year highs after Federal Reserve Chair Janet Yellen reinforced expectations for a faster pace of U.S. interest rate rises next year than had been expected. FRX/ U.S. rates could mean further gains for the U.S. currency, which when it rises makes dollar-denominated commodities more expensive for holders of other currencies.

"A strengthening U.S. and global economy, the dollar going up, higher equities and rising U.S. bond yields are negative for gold," said Societe Generale (PA:SOGN) analyst Robin Bhar.

"The Fed was more hawkish than we expected ... But it is surprising not to see some safe-haven buying after the events in Berlin and Turkey." U.S. Treasury yields mean it's cheaper for investors to buy U.S. government bonds, which like gold are seen as risk-free. But unlike gold which earns nothing and costs to insure and store, Treasuries earn regular coupons.

Investor confidence in the global economy can be seen in holdings of the SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, which at 26.624 million ounces on Monday is down more than 13 percent since Nov. 9. GOL/ETF

Traders say some profit-taking on short positions could see gold recover over the next few days, but they expect any gains to be limited and short-lived.

Also weighing on gold is the prospect of weaker physical demand in top consumer India where retail demand has faltered due to the government's move to scrap high-value currency notes. November, the Indian government's clamp down on the parallel economy ... pushed gold buying to around 10 percent of normal trade levels during a seasonally strong period for demand, after an initial flurry," Standard Chartered (LON:STAN) analysts said in a note.

"India's fiscal budget - potentially announced as early as late January - will be the next critical event to watch given market fears of gold trade restrictions. Despite attractive price levels, consumers in India have stayed away. This suggests to us that the gold market faces a fragile floor."

Silver XAG= fell 1.7 percent to $15.70 an ounce from an earlier $15.59, its lowest since April.

Platinum XPT= slid 1.5 percent to $898.9 an ounce.

Palladium XPD= lost 2.2 percent to $663.75 an ounce from an earlier $660.97, its lowest since Nov. 9.

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