July 16, 2018 / 2:15 PM / 5 months ago

PRECIOUS-Gold steadies as weak physical demand, higher U.S. rates weigh

    * Investors cut physical holdings of gold
    * Cost of holding gold rises with U.S. rates

 (Recasts first paragraph; updates prices; adds analyst comment;
adds NEW YORK to dateline)
    By Renita D. Young and Pratima Desai
    NEW YORK/LONDON, July 16 (Reuters) - Gold steadied on Monday
as weak physical demand in top-consuming regions and the
expectation of higher U.S. interest rates weigh, despite the
bullion-priced U.S. dollar losing steam.
    Spot gold        lost 0.2 percent at $1,239.11 per ounce by
1:33 p.m. EDT (1733 GMT). 
    U.S. gold futures         for August delivery settled down
$1.50, or 0.1 percent, at $1,239.70 per ounce. 
    A lower U.S. currency makes dollar-denominated gold cheaper
for holders of other currencies, which typically boosts bullion
demand. However, low physical demand in top gold-consuming
countries China and India and the continued expectation of the
U.S. Federal Reserve to raise interest rates pressured bullion,
traders said.
    "It seems the second quarter Chinese figures are putting a
damper on the metals," said George Gero, managing director of
RBC Wealth Management.
    China's economy expanded at a slower pace in the second
quarter as Beijing's efforts to contain debt hurt activity,
while June factory output growth weakened to a two-year low.
            
    India's gold imports fell for a sixth month in June to 44
tonnes as a drop in the rupee lifted local prices to their
highest in nearly 21 months, curtailing demand.             
    "Indian and China retail consumption has been hindered by
depreciating local FX," Citi analysts said in a note. "Investors
may favor gold again, especially if trade friction rises further
and becomes a more sizeable threat to economic growth and to the
decade-long equity market bull run."
    The U.S. dollar fell as investors pared back long bets on
the greenback and rebalanced their positions ahead of Fed
Chairman Jerome Powell's first congressional testimony on
Tuesday. He is expected to reiterate the Fed's gradual monetary
policy tightening.             
    Gold does not earn any interest or dividends and costs money
to store and insure.
    Meanwhile, holdings for the largest gold-backed
exchange-traded-fund (ETF), New York's SPDR Gold Trust      ,
have fallen more than 8 percent since late April to less than 26
million ounces, showing fading investor interest in bullion.
               
    Silver        lost 0.1 percent at $15.77 per ounce.
    Platinum        slipped 0.2 percent at $824.10 an ounce. 
Palladium        declined 2.2 percent at $916.47 an ounce,
earlier dipping to $914.75, its lowest since April 9.
    Analysts expect palladium prices to remain supported.
    "Our indicators suggest that palladium remains the tightest
it has been in about 20 years -- and is expected to remain in
deficit," Citi analysts said, adding they expect a palladium
market deficit of 458,000 ounces this year and a 608,000
shortfall next year.
    

 (Additional reporting by Apeksha Nair in Bengaluru
Editing by Adrian Croft, David Goodman and Will Dunham)
  
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