August 22, 2017 / 9:55 AM / 3 months ago

PRECIOUS-Gold eases, palladium falls from 16-1/2-year high

    * Investors watching U.S. military drills with South Korea
    * Traders await Yellen, Draghi speeches on Friday
    * Fundamentals do not justify palladium rally -trader

 (Recasts first paragraph, updates prices; adds comment, second
byline, NEW YORK dateline)
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, Aug 22 (Reuters) - Gold prices fell on
Tuesday, pressured by the stronger U.S. dollar ahead of an
annual meeting of central bankers this week, while palladium
fell from its highest level since February 2001.
    Spot gold        was down 0.4 percent at $1,285.25 an ounce
by 2:15 p.m. EDT (1815 GMT), holding near last week's peak at
$1,300.80, its highest since early November. U.S. gold futures
        settled down 0.4 percent at $1,291.
    Investors awaited speeches by European Central Bank
President Mario Draghi and U.S. Federal Reserve Chair Janet
Yellen on Friday at Jackson Hole, Wyoming, for clues to the
direction of interest and currency rates.          
    The firm greenback makes dollar-denominated commodities more
expensive for holders of other currencies, which could subdue
demand.       
    "Draghi could take the opportunity to downplay the idea of
monetary tightening in the euro zone, which would have a
dampening effect on the euro and lift the dollar," said Julius
Baer analyst Carsten Menke.
    "From the Fed's perspective, we think they are not too
concerned about weaker than expected inflation readings...It's
pretty clear the Fed needs to raise rates."
    The Federal Reserve next meets on Sept. 19-20. Fed funds
futures prices show traders see a 42 percent chance of an
interest rate increase by the December meeting, with a marginal
chance of a rate cut, according to CME Group's FedWatch tool.
            
    "Dovish monetary policy, especially from the Fed, and/or
significant escalation of geopolitical risks are potential
triggers. We expect the former to have a more durable price
impact," said Joni Teves, strategist for UBS, in reference to
what could drive gold prices above $1,300.
    Preventing deeper losses were tensions between North Korea
and the United States. U.S. forces began long-planned joint
military drills with South Korea on Monday. North Korea said the
drills were a step towards nuclear conflict.             
    Palladium        was down 1.2 percent at $927.75 an ounce,
after rising to $940, matching the prior session's peak and the
highest level since February 2001.
    "Palladium has been pushed up by speculative funds. There is
nothing in the fundamentals to justify these levels," a precious
metals trader said, adding that a slowdown in U.S. auto sales
over coming months would spike the bubble.
    Both platinum and palladium are used to make autocatalysts.
    But platinum is predominantly used in diesel engines and
palladium in gasoline engines, which dominate the U.S. market.
                     
    Silver        was down 0.2 percent to $16.94 an ounce, and
platinum        slipped 0.6 percent to $971.95.

 (Additional reporting by Apeksha Nair in Bengaluru; Editing by
Louise Heavens and Cynthia Osterman)
  

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