April 23, 2018 / 4:38 AM / a month ago

Palladium plunges as U.S. hints at Russia sanctions relief

NEW YORK/LONDON (Reuters) - Palladium sank more than 5 percent on Monday amid U.S. hints it might relieve sanctions on Russia’s Rusal (0486.HK), while gold hit a two-week low as investors piled into the dollar with U.S. Treasury yields approaching 3 percent.

Gold bars are seen at the Kazakhstan's National Bank vault in Almaty, Kazakhstan, September 30, 2016. REUTERS/Mariya Gordeyeva/File Photo

The United States said it could give sanctions relief to Russian aluminium giant Rusal if Russian tycoon Oleg Deripaska cedes control of the company, easing fears that Washington might extend sanctions to major palladium producer Nornickel (GMKN.MM). Deripaska is among seven Russian oligarchs sanctioned by the United States as part of a larger action targeting Moscow’s “malign activities” around the world.

Nornickel, by far the world’s largest palladium producer, is linked with both Rusal and Deripaska, and fears it might also be targeted by U.S. sanctions have sent prices soaring ever since April 6, when the current sanctions were imposed.

Spot palladium XPD= dropped more than 5 percent to a session low of $971.72 an ounce, but were trading down 4.4 percent at $984.70 per ounce by 2:01 p.m. EDT (1801 GMT). Spot gold XAU= dropped 0.9 percent to $1,323.40 per ounce, having touched a more than two-week low of $1,322.81.

“Palladium might hold the 200-day moving average at $964.30 per ounce,” said Phillip Streible, senior commodities strategist at RJO Futures.

The U.S. dollar rallied to a seven-week high after a rise in U.S. benchmark 10-year Treasury yields US10YT=RR to within a whisker of the psychologically important 3-percent level. A stronger dollar makes dollar-priced gold costlier holders of other currencies. [FRX/] [MKTS/GLOB]

“If we break above (3 percent) it will be first time in five years this has happened and this increases opportunity cost of holding (non-yielding) gold,” said Mitsubishi analyst Jonathan Butler.

But he said the reason yields were rallying was because U.S. interest rates were expected to climb due to the quickening pace of inflation.

“If inflation is rising, gold provides a hedge,” he said, adding there was also longer-term upside for gold from geopolitical tensions and a U.S. currency stuck in a long-term downtrend as global central banks begin raising rates.

U.S. gold futures GCcv1 for June delivery settled down $14.30, or 1.1 percent, at $1,324 per ounce.

Gold, seen as a safe haven in times of political turmoil, was also under pressure after North Korea said at the weekend it would suspend nuclear and missile tests before planned summits with South Korea and the United States.

Added to this development were signs that U.S.-China relations might be thawing.

“We’re getting down to the bottom of the range. Looks like the next support level would be the 100-day around $1,318 per ounce,” said Ryan McKay, commodity strategist at TD Securities.

Spot silver XAG= fell 2.8 percent at $16.63 per ounce while platinum XPT= dipped 0.2 percent at $920.30 an ounce, having hit a two-week low of $910.75.

    Additional reporting by Apeksha Nair; editing by Mark Potter and G Crosse

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