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PRECIOUS-Gold drops on dollar rise as U.S. data supports rate-hike prospect
October 14, 2016 / 10:41 AM / 10 months ago

PRECIOUS-Gold drops on dollar rise as U.S. data supports rate-hike prospect

* U.S. retail sales, producer prices rose in September
    * Fed's Yellen gives review of where recovery may fall short
    * Palladium bounces up from three-month low

 (Updates prices; adds comment, second byline, NEW YORK
dateline)
    By Marcy Nicholson and Clara Denina 
    NEW YORK/LONDON, Oct 14 (Reuters) - Gold fell on Friday as
the dollar rose after U.S. economic data came in within
analysts' expectations, cementing assumptions of an interest
rate increase by the Federal Reserve by year-end.
    U.S. retail sales rebounded 0.6 percent in September while
producer prices also rose broadly to record their biggest
year-on-year increase since December 2014. 
    The dollar gained 0.4 percent against a basket of six
major currencies. 
    Spot gold was down 0.3 percent at $1,254.26 an ounce
by 2:12 p.m. EDT (1812 GMT). U.S. gold futures settled
down 0.2 percent, at $1,255.50. 
    Later in the session, Federal Reserve Chair Janet Yellen
gave a broad review of where the U.S. economic recovery may
still fall short. 
    "While Yellen did point out some of the longer-term reasons
for keeping interest rates lower than in previous cycles, she
importantly didn't give any indication that she is opposed to
the market interpreting recent Fed communications as signaling a
rate hike is imminent this year," said Royce Mendes, director
and senior economist at CIBC Capital Markets in Toronto, adding
that the bank still expects a rate hike in December.
    Earlier, Boston Fed President Eric Rosengren said that
investors were probably right in placing "very high" odds on a
U.S. interest rate increase in December.
  
    Markets are pricing in around a 70 percent chance that the
Fed will move.
    Gold is highly sensitive to increases in U.S. interest
rates, which can lift the opportunity cost of holding
non-interest-bearing gold.
    "We are in the midst of one of those large Fed-related moves
- we saw an almost $100 upswing in June and July and we are now
seeing a $100 decline in September and October as markets see a
Fed rate hike coming in," ING Bank senior strategist Hamza Khan 
said.
    Holdings of the SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, rose 0.28 percent to 961.57
tonnes on Thursday. 
    Among other precious metals, spot palladium was up
1.3 percent at $646 an ounce after touching a new three-month
low of $629.22. 
    "Interest by investors to buy palladium has been muted this
year; large ETF outflows are evidence of this," said UBS Wealth
Management Research in a note.
    "However, we expect this trend to reverse in coming months,
sparked by greater concerns about a deeper market deficit as
industrial activity lifts further and mine supply struggles to
respond."
    Silver was down 0.05 percent at $17.44, while
platinum rose 0.1 percent at $937, on track for its third
weekly fall. 

 (Reporting by Marcy Nicholson; Editing by Bernadette Baum)

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