March 20, 2012 / 11:44 AM / 5 years ago

PRECIOUS-Gold falls as economic optimism boosts dollar

(Updates prices, comment, rewrites throughout)	
    * Rising Treasury yields dent gold
    * Longer-term positive factors remain intact
    * Indian jewelry strike cuts demand

    By Frank Tang and Carole Vaporean	
    NEW YORK/LONDON, March 20 (Reuters) - Gold fell on Tuesday,
on track to snap a three-day winning streak, amid selling
prompted by lower crude oil and U.S. equity markets and a spate
of positive U.S. economic data that eroded hopes of more U.S.
monetary easing.	
    Spot gold narrowed its losses by 1:18 p.m. EDT/17:18
GMT to $1,652.21 an ounce from $1,660.40 late Monday, having
slid by nearly 3 percent so far this month.	
    The COMEX April gold contract was down $20.1, or 1.2
percent at $1,647.1 per ounce.	
    The yellow metal, which has been following riskier assets
such as stocks, also fell after a disappointing U.S. housing
starts report. 	
    "Money managers are reallocating capital into risk assets
they had been shying away from, while liquidating some of their
gold holdings (as) the economic picture painted in the first
quarter has given reason to believe growth is on the right
path," said Carlos Perez-Santalla, a trader at PVM Futures in
New York.	
    Adding to the negative mood in gold was a sharp rise in
benchmark 10-year U.S. Treasury yields, which have
gained more than a third of a percentage point in less than a
week. Both Treasury securities and gold tend to be sold when
economic growth improves, traders said.	
     Gold's correlation with Treasuries has reversed in the last
week, meaning the bullion price is now more likely to move in
tandem with Treasury prices than against them.	
    "It's very much intraday movements related to the ups and
downs of the dollar, which is setting the agenda for the time
being," said Ole Hansen, senior manager at Saxo Bank.	
    The dollar gained against the euro and yen in quiet trade,
while the Australian dollar tumbled on central bank hints of
more room to ease and fears about China's growth. 	
    Lackluster physical and investment demand has pressured the
metal, as a strike by India's jewelry industry entered a fourth
day. They were opposing a sharp bullion import duty hike.
 	
    Gold losses were further sparked by declines in the world's
largest gold exchange-traded funds. Holdings of gold in the
world's major ETPs saw their largest one-day outflow in two
months on Tuesday, falling by over 56,000 ounces to 70.843
million ounces. 	
    Gold's 3 percent decline last week erased gains won in
January on hopes of further U.S. monetary easing. On Tuesday, a
top Fed official said the U.S. central bank has not yet decided
whether to embark on a third round of quantitative easing, or
QE3. [ID: nL1E8EJ6T6]	
    Some buyers remained on the sidelines as they waited to see
if Congressional testimony by Fed Chairman Ben Bernanke on
Wednesday offers new clues about further easing, traders said.	
    "We are going to see a bumpy ride over the coming weeks, but
I think investors eventually will step up to the plate. Rising
bond yields are not going to be looked upon lightly by the Fed
and some kind of (central bank) action could be the result,
which will support gold," said Saxo Bank's Hansen.	
    Despite Tuesday's drop, gold options suggest some investors
remain bullish as they are buying deep out-of-the-money call
spreads and call options, or the right to buy gold futures.	
    This move follows recent heavy purchases of puts, or the
right to sell gold, to protect downside risk against their long
futures position, said Jonathan Jossen, a COMEX gold options
floor trader.	
    Analysts said, however, that gold could test its December
lows as some funds appear to have closed out of their bullish
gold bets, fearing the Fed may have finished with quantitative
easing.	
    In late December, gold fell toward $1,500 an ounce, after a
more than 20 percent drop from an all-time high above $1,920 in
September. Gold is still up more than 5 percent this year.	
   	
    YIELD APPEAL	
    A rise in yields increases the appeal of the U.S. dollar for
foreign investors, which in turn delivers a double blow to gold.
The precious metal tends to fall when the dollar strengthens as
non-U.S. investors sell bullion holdings to take greater profit
on positions in their local currencies. 	
    When interest rates are low, investors forfeit less of a
premium for holding gold, which bears no yield or dividend,
rather than stocks or bonds. An environment of rising rates
increases this opportunity cost.	
    Citing high liquidity, low interest rates and sovereign debt
concerns Anne-Laure Tremblay, an analyst at BNP Paribas, said
while headwinds still exist for gold in the short-term, she
maintains her price forecast for this year at $1,850.00/oz.	
    In other precious metals, silver fell by 3.8 percent
to $31.96 an ounce, while U.S. May silver futures were
down 1.12 cents at $31.805.	
    Platinum fell 1.5 percent to $1,649.24 an ounce,
while palladium was down 2.1 percent to $687.05 an ounce.	
 	
 Prices at 2:15 p.m. EST (1815 GMT)      
                              LAST/      NET    PCT     YTD
                              CLOSE      CHG    CHG     CHG
                           #VALUE!
 US silver                   31.805   -1.121   0.0%   13.9%
                           #VALUE!
 US palladium                695.55   -10.55  -1.5%    6.0%
 
 Gold                       1648.59   -11.81  -0.7%    5.4%
 Silver                       31.96    -1.26  -3.8%   15.4%
 Platinum                   1649.24   -25.29  -1.5%   18.4%
 Palladium                   687.05   -14.88  -2.1%    5.3%
 
 Gold Fix                   1656.75     8.25   0.5%    5.2%
 Silver Fix                   32.22   -22.00  -0.7%   14.3%
 Platinum Fix               1656.00     8.00   0.5%   19.9%
 Palladium Fix               699.00     2.00   0.3%    9.9%
 	
	
 (Additional reporting by Amanda Cooper; Editing by Alison
Birrane; Editing by Bob Burgdorfer)

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