January 10, 2018 / 11:17 AM / in 9 months

PRECIOUS-Gold hits near 4-month high as dollar slides on China report

    * Dollar index posts biggest 1-day drop in a month
    * Drop in U.S. unit helps gold shrug off rise in bond yields
    * GRAPHIC-2018 asset returns: tmsnrt.rs/2jvdmXl

 (Releads, updates prices, adds comment)
    By Jan Harvey
    LONDON, Jan 10 (Reuters) - Gold jumped to its highest in
nearly four months on Wednesday as a report that Chinese
officials had recommended slowing or halting U.S. Treasury
purchases sparked a broad-based sell-off of the dollar, lifting
assets priced in the U.S. currency.
    The dollar, already under pressure versus the yen after the
Bank of Japan moved to trim its long-dated government bond
purchases earlier this week, slid 0.6 percent versus a currency
basket, its biggest one-day drop in a month.       
    Spot gold        was up 0.9 percent at $1,324.84 an ounce at
1211 GMT, having earlier touched its highest since Sept. 15 at
$1,326.56. U.S. gold futures        for February delivery were
up $12.30 an ounce at $1,326.00.
    "Gold is fuelled by the weak dollar after the China news
came out," Commerzbank analyst Daniele Briesemann said. "U.S.
Treasury yields are continuing to rise - that should be a
headwind for gold, but it seems to be ignored after the news
late morning. It all comes down to the weak dollar."
    "Maybe with the opening of the U.S. we could see more gains
in gold due to an even weaker dollar," he added. 
    The U.S. currency slumped on Wednesday after a report that
China was reconsidering its stance on U.S. treasury purchases,
with the greenback posting its biggest single-day drop against
the Japanese yen in nearly eight months.       
    Officials reviewing China's foreign-exchange holdings have
recommended slowing or halting purchases of U.S. Treasuries,
Bloomberg News reported, citing people familiar with the matter.
            
    Major government bond yields hit multi-month highs on
Wednesday as investors reevaluated the likelihood of continued
easy-money policies by the world's major central banks following
the BoJ move. The 10-year U.S. Treasury yield             hit
2.57 percent for the first time since March.            
    The dollar's slide helped gold shrug off the impact of
rising global Treasury yields, which increase the opportunity
cost of holding non-interest bearing bullion.
    "If the reports turn out to be true and China no longer sees
Treasuries as an attractive option, the repercussions could be
significant as the country is one of the biggest holders of U.S.
debt," OANDA said in a note. 
    "The tightening effect of such measures would likely have an
impact on how many times the Federal Reserve raises interest
rates this year, which is why we've seen a corresponding drop in
the dollar."
    Among other metals, palladium        was down 0.2 percent at
$1,098.22 an ounce, after hitting a record high on Tuesday at
$1,111.40. Tightening emissions standards and a switch away from
diesel cars to more palladium-heavy gasoline models has shored
up demand expectations for the autocatalyst metal. 
    Silver        was up 1.2 percent at $17.15 an ounce, while
platinum        was 0.4 percent higher at $969.40 an ounce.

 (Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by Edmund Blair and Jane Merriman)
  
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