June 9, 2017 / 9:47 AM / a year ago

PRECIOUS-Palladium surges 7 pct to highest in 16 years; gold retreats

    * Palladium hits highest since February 2001
    * Gold slips 1 pct as drop in sterling lifts dollar
    * GRAPHIC-2017 asset returns: tmsnrt.rs/2jvdmXl

 (Updates prices)
    By Jan Harvey
    LONDON, June 9 (Reuters) - Palladium leapt more than 7
percent on Friday to its highest in over 16 years, as a surge in
speculative demand forced industrial users to close out short
positions, traders said, pushing the metal through long-term
chart resistance.
    The backwardation in the market - a formation in the forward
curve in which the price of metal for future delivery is below
the spot price, can suggest a near-term shortage of metal and
has recently steepened, prompting a wave of buying.  
    That pushed prices through the 16-year declining trendline
at $868 an ounce, triggering a further surge that took them to
their highest since early 2001 at $914.70 an ounce. Spot
palladium        was at $884.60 an ounce at 1345 GMT, up 3.7
    "The background for palladium is for good industrial demand
and likely a significant market deficit this year, and on top of
course you've got this speculative squeeze," Mitsubishi analyst
Jonathan Butler said.
    "The backwardation has got a lot steeper in the last day.
Metal for immediate delivery is very tight, and that is being
reflected in those forward rates moving into an even steeper
    Traders reported a reluctance to lend the metal, suggesting
tightness in near-term supply. Chart patterns indicate that the
metal is vulnerable to a sell-off from these elevated levels,
however, technical analysts said.
    Gold fell for a third day, meanwhile, after British
elections failed to deliver a clear majority for Prime Minister
Theresa May, knocking the pound sharply lower and helping lift
the dollar index to its highest since late May.  
    Spot gold        was down 1 percent at $1,265.91 an ounce,
while U.S. gold futures        for August delivery were $10.90
an ounce lower at $1,268.60.
    Sterling-denominated gold            rose to a near
two-month high of 1,007.98 pounds an ounce as the British
currency fell as much as 2.5 percent. Along with a drop in the
euro, that helped lift the dollar half a percent versus a
currency basket. 
    Meanwhile the FTSE share index, composed largely of
companies that earn foreign currencies and benefit from a weaker
pound, rose 0.5 percent, undermining potential demand for gold
as a haven from risk.
    "A lot of the financial markets haven't moved as much as you
might have thought," Oxford Economics analyst Daniel Smith said.
    "The dollar's a little bit stronger, and that's going to
weigh on gold," he said. "It's not just about risk appetite,
it's about what people are thinking on the dollar."
    Among other precious metals, silver        was down 0.8
percent to $17.23 an ounce, while platinum        was 0.6
percent higher at $938.80.

 (Reporting by Jan Harvey; Additional reporting by Vijaykumar
Vedala and Koustav Samanta in Bengaluru; Editing by Mark Potter
and Elaine Hardcastle)
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