January 2, 2018 / 10:59 AM / a year ago

PRECIOUS-Gold hits 3-month peak after late December rally

    * Dollar, stock markets start 2018 on back foot
    * Spot gold chart shows overbought conditions-technicals
    * Palladium hits 17-year peak after 56 pct rally in 2017

 (Updates prices)
    By Jan Harvey
    LONDON, Jan 2 (Reuters) - Gold hit its highest since late
September on Tuesday, extending a year-end rally that saw the
metal rise 4.4 percent in the last three weeks of 2017, as a
further retreat in the dollar drove prices above $1,310 an
ounce.
    The weaker dollar, which posted its biggest annual drop
since 2003 last year, helped to lift gold by more than 13
percent in 2017. The metal surged $55 an ounce in the last three
weeks of the year alone. 
    While technical analysts warn that gold's rally is now
looking overstretched, spot prices rose to a peak of $1,313.88
an ounce earlier on Tuesday. 
    Spot gold        was up 0.8 percent at $1,313.43 an ounce at
1335 GMT, while U.S. gold futures        for February delivery
were up $6.00 an ounce at $1,315.30.
    "Gold starts 2018 at the highest level since September, and
the highest January opening since 2013," Mitsubishi analyst
Jonathan Butler said. "It is only the fourth time ever that gold
has opened the year above $1,300."
    "The key questions for gold in 2018 will be how quickly
developed economies can normalise interest rates after more than
a decade of monetary largesse; how much further global equity
market rallies can extend; what the longer-term impact of the
Trump tax reforms will be on corporates and on U.S. government
debt levels; and when inflation will finally start to pick up."
    Further dollar weakness could support gold in the near term,
he said. The U.S. currency slipped to a four-month low against
the euro on Tuesday on optimism over a brightening economic
picture in the euro zone, while stocks had a groggy start to the
year.                   
    Gold benefited from technical strength after closing above
200-day and 100-day moving averages over the past two weeks and
breaching key psychological resistance at $1,300 on Friday,
analysts and traders said.
    However the bulk of its rally came during the holiday period
with much lower-than-normal average daily volumes, Jeffrey
Halley, senior market analyst at OANDA, said, and gold is
looking overbought.
    Spot gold's 14-day relative strength index (RSI) touched
72.54 on Tuesday, it highest since September 2017. An RSI above
70 indicates a commodity is overbought.
    "The RSI has been an excellent indicator of short-term price
corrections in 2017," Halley said.
    Among other precious metals, spot silver        was up 1.1
percent at $17.13. Spot platinum        was 1.2 percent higher
at $936.50. 
    Palladium        was up 2.3 percent at $1,085.10, its
highest since Jan. 2001. It was the standout performer among
major precious metals last year, rising 56 percent to hit a
series of multi-year highs. 

    
 (Additional reporting by Nallur Sethuraman in Bengaluru;
editing by Jane Merriman and Jason Neely)
  
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