September 25, 2017 / 9:53 AM / a year ago

PRECIOUS-Gold dips as German election result knocks euro

    * Euro weakens as Germany's Merkel faces coalition talks
    * Physical gold demand soft across Asia -dealers
    * GRAPHIC-2017 asset returns:

 (Updates prices)
    By Jan Harvey
    LONDON, Sept 25 (Reuters) - Gold eased on Monday as the
prospect of a fractured parliament in Germany following
Chancellor Angela Merkel's less than resounding election victory
over the weekend knocked the euro lower. 
    Consequent dollar strength helped push gold back towards
Thursday's low of $1,287.61 an ounce, its weakest since Aug. 25,
which fed into a second straight weekly decline for the metal.
    Spot gold        was down 0.2 percent at $1,294.46 an ounce
at 1145 GMT, while U.S. gold futures        for December
delivery were 40 cents an ounce lower at $1,297.10.
    Gold has now slipped nearly 5 percent from the more than
one-year high it hit on Sept. 8, largely on the back of concerns
over North Korea's nuclear ambitions, which have now waned.
    "If the dollar continues to rally and North Korea stays
quiet, gold can continue to fall," David Govett, head of
precious metals at Marex Spectron, said. "But all it will take
is one missile launch or similar, and we will rally back up
above $1,300 again."
    The euro slid 0.7 percent against the dollar and southern
European government bonds sold off after the German election
result sparked fears of a more hardline stance towards the euro
zone in the bloc's largest economy.                
    Weakened by a surge in support for the far right, Germany's
Merkel will have to sound out partners to build a coalition
government after securing a fourth term as chancellor in
Sunday's election.             
    Gold has also come under pressure from rising expectations
that the Federal Reserve will lift U.S. interest rates once more
this year, and start trimming the $4.5 trillion in bonds and
other assets it built up following the 2008 financial crisis.
    "The U.S. Federal Reserve started its balance sheet
reduction last week as well as still pricing in a one-time rate
hike by year-end," OCBC analyst Barnabas Gan said. "This still
has a strong influence in pushing gold prices lower."
    Physical gold demand remained soft in the major Asian
markets last week despite lower prices, as consumers awaited
further dips, while a government move to bring transparency to
bullion trading kept buyers on the sidelines in India.         
    Silver        was 0.2 percent lower at $16.90 an ounce,
after falling more than 3.5 percent last week in the biggest
weekly decline since early July. 
    Platinum        was up 0.2 percent at $932.50 an ounce, off
an eight-week low hit on Thursday, while palladium        was
0.5 percent higher at $912 an ounce.

 (Additional reporting by Nithin Prasad in Bengaluru; Editing by
Susan Fenton and Adrian Croft)
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