December 20, 2016 / 1:14 AM / 9 months ago

Gold falls as dollar rises, investors retreat

Gold products are displayed for sale at a shop in Hanoi December 3, 2015. REUTERS/Kham

NEW YORK/LONDON (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= was down 0.7 percent at $1,131.18 an ounce by 2:51 p.m. EST (1951 GMT), after hitting a session low at $1,125.23, not far from last week’s 10-1/2-month low of $1,122.35, its lowest since early February. U.S. gold futures GCcv1 settled down 0.8 percent at $1,133.60.

Gold prices came off their session lows as the U.S. dollar .DXY pared gains from 14-year highs. The greenback was buoyed by comments from Federal Reserve Chair Janet Yellen that reinforced expectations for a faster pace of U.S. interest rate increases next year than had been expected.

“Chair of the Fed Yellen yesterday reinforced Fed rate hike plans and headwinds persist for gold holders for now,” said George Gero, managing director at RBC Wealth Management.

“It’s all about the dollar as usual; also higher bond yields are not only anti-inflationary but competitive to gold holders.”

Rising 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.

Higher U.S. Treasury yields mean it is 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.

“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,” said Societe Generale analyst Robin Bhar.

Investor confidence in the global economy is reflected in holdings of the SPDR Gold Trust (GLD), the world’s largest gold-backed exchange-traded fund, which at 26.624 million ounces on are down more than 13 percent since Nov. 9.

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.

“Despite attractive price levels, consumers in India have stayed away. This suggests to us that the gold market faces a fragile floor,” Standard Chartered analysts said in a note.

Silver XAG= turned up 0.3 percent at $16.02 an ounce after tapping $15.59, its lowest since April.

Platinum XPT= also turned higher and was up 0.2 percent at $918.40.

Palladium XPD= lost 1.8 percent at $664.75 an ounce after reaching $660.97, its lowest since Nov. 9.

Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Louise Heavens and Meredith Mazzilli

Our Standards:The Thomson Reuters Trust Principles.
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