July 18, 2016 / 5:51 AM / 3 years ago

Gold cuts gains on dollar strength after U.S. data

NEW YORK/LONDON (Reuters) - Gold cut some earlier gains on Tuesday, as the dollar hit a four-month high after data showed a surge in U.S. housing starts in June, although weaker equities provided support.

Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London, Britain July 21, 2015. REUTERS/Neil Hall/File Photo

U.S. homes surged 4.8 percent to a seasonally adjusted annual pace of 1.19 million units, the Commerce Department said on Tuesday.

The recent rally in global equity prices faltered as investors pondered some disappointing earnings reports and signs that Britain’s decision to leave the EU could hurt other economies.

Spot gold was up 0.2 percent at $1,331.10 an ounce by 3:25 p.m. EDT (1925 GMT), off a session high of $1,334.88. U.S. gold settled up 0.2 percent at $1,332.3 per ounce.

Gold has risen almost 25 percent this year, hitting its highest since March 2014 at $1,374.71 after Britain’s vote on the EU.

Prices have since retreated, hit by a series of positive U.S. economic data.

“We saw better economic data coming out of the U.S., giving the Federal Reserve a bit more ammunition to raise interest rates, which could damage gold in the short term,” said ETF Securities head of commodity research Nitesh Shah.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

Investors are now waiting for the outcome of the European Central Bank meeting on Thursday for further cues.

“There is talk of some further accommodation being doled out, in which case we could see gold moving a little higher from here,” said INTL FCStone in a note. “If the ECB holds back, the selling could resume, with a test of key support at $1,308 possibly being in the cards and needing to hold.”

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, firmed on Monday.

Spot palladium rose to the highest since early November, up 1.63 percent at $654.

“Palladium is expected to end this year in a wider deficit than last year, supported by improving industrial demand in coming quarters and contracting mine supply,” said UBS Research in a note.

Silver fell 0.8 pct at $19.87 an ounce, down for a fourth straight session.

“We caution against any further silver price optimism in 2H16 (second half of 2016),” said Citi Research in a note.

“Struggling beyond $20/oz, performance anxiety and profit taking ahead of the summer holiday season may deter money managers from adding fresh longs.”

Platinum was down 0.4 percent at $1,088.35.

Additional reporting By Nallur Sethuraman and Vijaykumar Vedala in Bengaluru; Editing by Louise Heavens and Cynthia Osterman

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