December 29, 2016 / 11:48 AM / a year ago

PRECIOUS-Gold rises as the dollar and U.S. bond yields decline

* Spot prices poised to end 2016 higher
    * GRAPHIC-2016 metal returns:

 (Updates prices)
    By Clara Denina 
    LONDON, Dec 29 (Reuters) - Gold prices rose to their highest
in two weeks on Thursday as the dollar and U.S. bond yields
declined following weaker than expected economic data.
    Spot gold hit $1,150.26 an ounce, its highest since
Dec. 14., and was up 0.4 percent at $1,146.28 by 1451 GMT.
    U.S. gold futures rose $6.00 to $1,146.90 an ounce.
    "Gold is not out of the woods yet but yields are a bit lower
and the dollar is weaker, especially against the yen and
yen-gold has showed a phenomenal correlation since the U.S.
election," SaxoBank head of commodity research Ole Hansen said.
    Gold fell more than 8 percent in November as U.S. Treasury
yields rose after Donald Trump's election led to speculation his
commitment to infrastructure spending would spur growth.
    The precious metal then hit a 10-month low on Dec. 15 as
solid U.S. economic data gave the U.S. Federal Reserve the
confidence to raise interest rates for the first time in a year.
    The central bank also signalled that it expected three more
increases next year, up from a previous projection of two.
    Gold is highly sensitive to rising interest rates, which
lift the opportunity cost of holding non-yielding assets, while
boosting the dollar, in which it is priced.
    However, gold prices are still 8 percent higher than they
were at the start of the year and were heading for the first
annual increase after three years of declines. 
    "We are battling a bit here with the $1,150 level and if we
make it above that we shall open up towards $1,165 but in order
for funds to start getting worried about covering shorts, we
probably need to rise above the mid $1,170s," SaxoBank's Hansen
    The dollar fell 0.4 percent against a basket of six
main currencies, mostly due to the yen's strength, while the
benchmark 10-year U.S. Treasury yield slipped to
two-week lows. 
    "Heading into next week ... the Italian bank rescue and the
direction of the Chinese yuan will likely dictate near-term
pricing in gold, especially if equity markets start to get
nervous about either of these two developments," INTL FCStone
analyst Edward Meir said in a note. 
    Gold is usually seen as a refuge from riskier assets such as
    China's net gold imports in November via its main conduit
Hong Kong dropped 17.8 percent from October to the lowest in 10
months, data showed on Thursday. 
    Among other precious metals, silver was unchanged at
$16.01 an ounce. Platinum was 0.1 percent lower at
$899.60, while palladium climbed 0.9 percent to $672.25
an ounce.

 (Additional reporting by Swati Verma in Bengaluru; editing by
David Clarke and Adrian Croft)
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