* Gold down in thin trade on rising U.S. short-term rates
* Silver falls for second day on technical selling
* Dollar firms after spike in U.S. Treasury yields
* Coming up: U.S. weekly jobless claims Thursday
(Recasts, adds comments, graphic, updates prices to market
close; changes dateline/byline, previously LONDON)
By Frank Tang
NEW YORK, Dec 8 (Reuters) - Gold prices fell more than 1
percent for a second day on Wednesday as an extended fall in
U.S. Treasury prices fueled profit-taking from bullion's record
run by investors seeking better yield returns.
Benchmark Treasury yields jumped to a six-month high for a
second straight day, after a deal in Washington to extend tax
cuts fueled fears of a swelling budget deficit. []
The dollar also gained, buoyed by hope of improving U.S.
economic growth as the effective tax stimulus filtered through.
[]
The combined effect of those factors drove profit-taking in
precious metals, sensitive to both interest rates and the
dollar. Gold has rallied 26 percent this year, while silver,
which fell in tandem on Wednesday, has surged almost 70
percent.
"The positive view on U.S. growth engendered by the tax-cut
agreement and the rest of the Obama and congressional
Republican package triggered a surge in U.S. bond yields," said
James Steel, chief commodities analyst at HSBC.
"Higher rates will weigh on gold prices ... which could be
vulnerable to a sharp sell-off as in the run-up to the holiday
period trading volume is likely to diminish," he said.
Spot gold <XAU=> traded at $1,382.79 an ounce, down 1.3
percent, at 2:33 p.m. EST (1933 GMT), having earlier fallen by
as much as 2.1 percent to a one-week low of $1,371.45. U.S.
gold futures for February delivery <GCG1> settled down $25.80
at $1,383.20 an ounce.
"It really is just good old-fashioned profit-taking," said
Credit Agricole analyst Robin Bhar. "This year every time gold
makes a new high, it subsequently collapses.
"It is noticeable that we had quite an influx of momentum
traders as well, as the price was moving higher, and they're
notorious for being short-term players."
Adam Hewison, president of MarketClub.com, said that gold
was likely to be on the defensive in the next 4 to 6 days as
technical charts showed the current pattern is similar to the
previous declines in November and October.
(Graphic: http://link.reuters.com/qev29q)
Technical selling also accelerated the decline in silver
prices, which had jumped to a 30-year high above $30 an ounce,
but investment interest remained high as the world's largest
silver-backed exchange-traded fund hit another record high.
Silver <XAG=> dropped 1.1 percent to $28.34 an ounce,
causing the gold/silver ratio to stabilize hear a near-four
year low.
(Graphic: http://link.reuters.com/kuv29q)
HAVEN NO MORE
Gold has lost some safe-haven appeal as, for the first time
in weeks, euro zone debt concerns were placed on the back
burner and investors focused on U.S. economic fundamentals in a
thinning market.
Gold hit an all-time high at $1,430.95 an ounce on Tuesday,
but has now fallen by about 4 percent after the rally ran out
of steam.
Holdings in the No. 1 SPDR Gold Trust <GLD> remained steady
despite weaker gold prices, while the world's largest silver
ETF, iShares Silver Trust <SLV>, said its holdings hit another
record at 10,941.34 tonnes by Wednesday. []
Setting gold on the back foot early in the day was a rally
in the dollar, after the proposed extension in U.S. tax cuts
prompted a spike in bond yields on Tuesday, which in turn
raised the cost of holding gold to non-U.S. investors. []
While gold has shaken off its traditional inverse
relationship with the U.S. currency in the past when risk
aversion has worsened, this has not been the case this week,
when the negative correlation has strengthened.
"If you do get higher yields, the opportunity cost of
holding a zero-yielding asset like gold is a bit of a concern,
but it's more of a currency play in the near term," said RBS
analyst Daniel Major.
The rise in Treasury yields was seen as being supportive to
the dollar in the near term, while the tax deal itself could
lift growth next year and lessen the case for bigger monetary
stimulus by the Federal Reserve.
Platinum <XPT=> dropped 0.5 percent to $1,680.74 an ounce,
while palladium <XPD=> slipped 0.2 percent to $728.50.
(Additional reporting by Amanda Cooper and Jan Harvey in
London; Editing by Walter Bagley)
Prices at 2:35 p.m. EST (1935 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCG1> 1383.20 -25.80 -1.8% 26.2%
US silver <SIH1> 28.252 -1.525 -0.1% 67.7%
US platinum <PLF1> 1681.40 -23.80 -1.4% 14.3%
US palladium <PAH1> 728.95 -9.75 -1.3% 78.3%
Gold <XAU=> 1382.94 -17.92 -1.3% 26.1%
Silver <XAG=> 28.34 -0.32 -1.1% 68.3%
Platinum <XPT=> 1679.00 -9.50 -0.6% 14.6%
Palladium <XPD=> 727.72 -2.25 -0.3% 79.5%
Gold Fix <XAUFIX=> 1385.50 -9.50 -0.7% 25.5%
Silver Fix <XAGFIX=> 29.02 -148.00 -4.9% 70.8%
Platinum Fix <XPTFIX=> 1683.00 3.00 0.2% 14.8%
Palladium Fix <XPDFIX=> 729.00 8.00 1.1% 81.3%
