September 30, 2016 / 10:31 AM / a year ago

PRECIOUS-Gold gains as stocks slide on Deutsche Bank worries

* Hedge funds reinforce worries about Deutsche Bank
    * Analysts watching U.S. Treasury bond yields
    * U.S. consumer spending unexpectedly falls in August

 (Adds U.S. personal income data; updates prices)
    By Swetha Gopinath
    Sept 30 (Reuters) - Gold rose on Friday as concerns about
Deutsche Bank triggered a sharp sell-off in equities that
undermined risk appetite, and mixed U.S. data indicated that the
Federal Reserve might be cautious about raising interest rates.
    Spot gold was up 0.47 percent at $1,326.26 an ounce
by 1337 GMT. U.S. gold futures were up 0.29 percent at
$1,329.80 an ounce.
    A report that a number of hedge funds had withdrawn excess
cash from Deutsche Bank reinforced worries about
Germany's biggest lender. 
    The pan-European STOXX 600 index was down about 0.4
percent, having earlier fallen to its lowest point since early
August. 
    "If there is a rush to safety, then gold is a top
contender," said Hamza Khan, head of commodities strategy, at
ING. "There are also fundamental drivers supporting gold prices,
including demand from the Russian and Chinese central banks and
uncertainty about the U.S. Federal Reserve raising rates."
    Gold is highly sensitive to rising U.S. interest rates, as
these increase the opportunity cost of holding non-yielding
bullion, while boosting the dollar and making commodities more
expensive for non-U.S.-firms.
    U.S. consumer spending unexpectedly fell 0.1 percent in
August, after accounting for inflation - the first time in seven
months, while inflation showed signs of accelerating.
 
    Analysts polled by Reuters had expected a 0.1 percent gain
in consumer spending, which accounts for more than two-thirds of
U.S. economic activity. 
    The dollar trimmed gains and yields on U.S. government debt
fell after the data.
    Analysts are watching U.S. Treasury bond yields for clues to
the direction of gold prices. 
    "There have been periods when gold rallied in spite of Fed
policy tightening and periods when gold came under pressure,"
UBS analysts said in a note.
    "What ultimately matters for gold are real rather than
nominal yields ... While we expect the Fed to hike rates in
December, we continue to think U.S. long-end real yields have
room to fall further, supporting our positive gold view."
    Gold is up more than one percent so far this month, partly
because of the weaker dollar after the Fed chose not to raise
interest rates. In August, gold fell more than 3 percent.
    Silver was up nearly 3 percent at $19.61 an ounce.
Platinum was up more than 1 percent at $1,034.24 an ounce
and palladium was up nearly 2 percent at $724.40.
Palladium touched a 7-week high of $725.10 on Friday.

 (Additional reporting by Nallur Sethuraman in Bengaluru;
editing by Mark Heinrich and David Evans)

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