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PRECIOUS-Gold climbs above Feb lows, heading for sixth weekly drop
December 16, 2016 / 10:27 AM / in 10 months

PRECIOUS-Gold climbs above Feb lows, heading for sixth weekly drop

* Bullion rises after report China seized U.S. drone
    * Gold selling may not be exhausted - HSBC analyst
    * SPDR Gold Trust gold holdings down 10 pct since Nov

 (Recasts, updates prices; adds comment, second byline, NEW YORK
dateline)
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, Dec 16 (Reuters) - Gold rose on Friday,
climbing above the prior session's 10-1/2 month low, as the
dollar and U.S. stocks dipped at the end of a volatile week
highlighted by the Federal Reserve's signal that there could be
more rate hikes than previously expected in 2017.
    Spot gold was up 0.6 percent at $1,135.16 an ounce by
2:30 p.m. EST (1930 GMT). The metal hit $1,122.35 on Thursday,
its weakest since Feb. 2 and is down 2 percent so far this week,
leaving it on track for its sixth consecutive weekly loss.
    U.S. gold futures settled up 0.7 percent at
$1,137.40. 
    Gold prices rose to session highs after U.S. officials told
Reuters that a Chinese warship had seized an underwater drone
deployed by a U.S. oceanographic vessel in the South China Sea.
 
    "It gave gold a little bit of a boost but it was a knee jerk
spike. It looks like both sides are trying to tweak each other,
if you will," said Bill O'Neill, co-founder of LOGIC Advisors.
    "Today's something of a consolidation day across the board."
    The dollar fell from the 14-year high against a
basket of currencies reached on Thursday when markets
repositioned for a more hawkish U.S. central bank. 
    "The rate hike this week from the Fed and the hawkish
outlook for next year leave a fairly negative picture for gold,"
ING commodity strategist Warren Patterson said.
    Higher interest rates next year could propel the U.S.
currency higher, making gold more expensive for non-U.S. firms.
    "The nature of recent gold selling implies fresh shorting as
well as liquidation," HSBC analyst James Steel said in a note.
    "The selling may not yet be exhausted." 
    Highlighting investors' lack of appetite for gold are
physically backed gold exchange traded funds; holdings of the
SPDR Gold Trust, the world's largest gold ETF, are down
more than 10 percent since Nov. 9. 
    Silver gained 0.6 percent at $16.05 an ounce, after
falling more than 5 percent on Thursday.
    Platinum rallied 3.50 percent to $924.80, after
dropping to the lowest since early February in the previous
session. 
    Palladium was down 1.5 percent at $689.50 after
falling to a one-month low at $677.25. It is on track to end the
week down more than 5 percent. 
    "We would refrain from buying (platinum or palladium) at
this point in time," Julius Baer analyst Carsten Menke said in a
note. "We have become more cautious on the demand backdrop,
primarily related to autocatalysts and jewelry."

 (Additional reporting by Swati Verma and Nallur Sethuraman in
Bengaluru; Editing by Adrian Croft and Tom Brown)

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