March 14, 2012 / 12:06 PM / 5 years ago

PRECIOUS-Dollar, Fed push gold to lowest since late Jan

* Gold falls to lowest since Jan 25, giving up QE premium

* U.S. 10-year bond yields rise; 30-year hits 4-month high

* Platinum outperforms precious metals complex

By Veronica Brown

LONDON, March 14 (Reuters) - Gold fell to its lowest since late January on Wednesday after a modest upgrade of the U.S. Federal Reserve's economic outlook gave the dollar fresh impetus and investors an excuse to lighten holdings of bullion.

The Fed gave few clues on prospects for further monetary easing on Tuesday but offered a slightly brighter economic outlook, backed by a report that showed retail sales posting their largest gain in five months in February.

Spot gold fell 1.25 percent to $1,654.26 per ounce by 1140 GMT, its lowest since Jan. 25. U.S. April gold shed 2.15 percent to $1,657.90 per ounce.

The fall in gold reflects removal of the premium attached to further quantitative easing, with prices giving up almost all of the gains made since Jan. 25 when the Fed signaled the potential for additional policy stimulus.

"We saw the 10-year (U.S.) government bond yield breaking out of the holding pattern it's been trading in for the last five or six months. That's one of the precursors to a change in rate sentiment," Saxo Bank senior manager Ole Hansen said.

"Knowing how dovish the Fed - especially Bernanke - is, for him to say we're seeing growth is surprising. So removal of quantitative easing and a higher rates forecast is not good for gold in the near term," he added.

An ultra-low interest rate environment has been positive for gold as it takes focus away from its lack of yield.

The dollar rose broadly, hitting an 11-month high versus the yen, while U.S. government yields rose and European shares gained further traction.

Meanwhile, a slightly more optimistic economic outlook also spurred more investors to seek opportunities in other markets such as stocks.

"The froth is leaving gold to go into stocks as they see an opportunity there due to a slight improvement in the data. It's not over yet, but overall sentiment seems to be turning," a precious metals trader said.

Slightly more robust industrial data was reflected in the performance of platinum and palladium due to their use in car production.

Platinum is enjoying a premium of more than $30 to gold, with spot metal last at $1,683.99 per ounce, while palladium was also in positive territory at $700 per ounce.

"The potential for PGMs to outperform the complex is a reflection of the fact that a growth story would benefit industrials more than it would traditional safe havens, such as gold," UBS said in a note to clients.

"But from a relative value perspective in the PGM space, flow data of late continues to support the view that palladium is slightly favoured," it added. (editing by Jane Baird)

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