June 19, 2017 / 9:15 AM / a year ago

PRECIOUS-Gold at 5-week low on firm dollar, Brexit talks lend support

    * Gold ETF holdings fall after Fed raised rates
    * Gold falls below 100-day moving average
    * Falling car sales in China, U.S. to undermine palladium

 (Updates prices; adds comment, second byline, NEW YORK
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, June 19 (Reuters) - Gold fell to a near
five-week low on Monday as the dollar rose after hawkish
comments from a top Fed official, but uncertainty created by the
start of talks on the terms of Britain's departure from the
European Union prevented deeper losses.
    Spot gold        was down 0.7 percent at $1,244.85 an ounce
by 2:35 p.m. EDT (1835 GMT), after falling below the 100-day
moving average to $1,244.27, its lowest since May 17. U.S. gold
futures         settled down 0.8 percent at $1,246.70.
    New York Federal Reserve President William Dudley said U.S.
inflation is a little low but should rise alongside wages as the
labor market improves, allowing the Fed to continue gradually
tightening U.S. monetary policy.             
    The potential for higher rates reinforced the uptrend in the
dollar       , which, when it rises, makes dollar-denominated
commodities more expensive for holders of other currencies,
potentially weakening demand.       
    "The dollar is a large part of what's going on with gold,"
said ING commodities strategist Warren Patterson. "I do see some
support from uncertainty about the UK government and the start
of Brexit negotiations."
    British Prime Minister Theresa May's failure to win a
parliamentary election this month has, alongside Brexit
negotiations starting on Monday in Brussels, fueled political
    Weighing on gold is a drop in holdings of physically backed
exchange traded funds. The biggest, SPDR Gold Trust
               , saw holdings decrease by 1.5 percent last week,
the biggest weekly outflow in three months.          
    "The Fed continued to signal one additional hike in 2017,
but the market is only pricing in a 35 percent probability of a
further 25 bps increase this year," said Standard Chartered in a
note, referring to the U.S. Federal Reserve's statement last
    "The potential hikes, including their speed and magnitude,
have limited gold's upside risk in our view, and expectations
being scaled back bode well for prices later in the year."
    Elsewhere, palladium        was down 0.3 percent at $858.49
an ounce. Prices hovered below a 16-year high but analysts say
palladium's gains of more than 25 percent so far this year may
not be justified given slowing auto sales.
    "There are some concerning signals from the two largest
gasoline (palladium) auto markets, the U.S. and China," ICBC
Standard Bank analysts said in a note.
    "The pace of sales growth in both countries has slowed
sharply this year."
    U.S. and Chinese passenger car sales fell in May from a year
    Silver        lost 0.3 percent to $16.54 an ounce and
platinum        slid 0.6 percent to $918.55 an ounce.

 (Additional reporting by Nithin Prasad and Vijaykumar Vedala in
Bengaluru; Editing by Louise Heavens and James Dalgleish)
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