* Gold up, euro swings into positive territory vs dollar
* Gold boosted as China holds rate despite inflation
* Physical demand rebounds after prices slipped last week
* Coming up: U.S. FOMC policy statement due Tuesday
(Recasts, updates prices, market activity to close, new
byline, changes dateline, previously LONDON)
By Frank Tang
NEW YORK, Dec 13 (Reuters) - Gold rose toward $1,400 an
ounce on Monday after a 2 percent decline last week, with
investors buying bullion as the dollar weakened, China kept
interest rates steady and a U.S. tax cut extension loomed.
The dollar fell, partly on concern a tax cut extension
could swell the U.S. budget deficit. This gave gold a boost, as
did signs that inflation is heating up in China, which has so
far refrained from raising interest rates.
"There is inflation coming through the roof when it came to
the Chinese data," said Bill O'Neill, partner of New
Jersey-based commodities firm LOGIC Advisors.
China's inflation soared past forecasts as its November
consumer price index hit a 28-month high at 5.1 percent on a
year-on-year basis. []
Last week, China has boosted bank reserves, a move
investors see as less aggressive than an interest rate hike.
Spot gold <XAU=> rose 1 percent to $1,396.87 an ounce at
2:47 p.m. EST (1947 GMT). U.S. gold futures for December
delivery <GCZ0> settled up $13.10 an ounce to $1,398.
Silver <XAG=> resumed its rally after last week's decline,
sharply outperforming gold. Silver climbed 3.5 percent to
$29.54 an ounce, dropping the gold/silver ratio to near its
lowest level in four years.
COMEX gold and silver futures volume were about 50 percent
below their 30-day averages, preliminary Reuters data showed.
Some trading desks and funds have closed their books ahead of
year end.
Frank McGhee, head precious metals trader of Integrated
Brokerage Services LLC in Chicago, said the prospect of a deal
to extend U.S. tax cuts, which will increase fiscal deficit and
could lead to inflation, underpinned gold.
The $858 billion package, which would keep lowered
income-tax rates from expiring at year end, was expected to
clear a procedural vote in the U.S. Senate on Monday.
[]
Investors also had an eye on Federal Reserve policy makers
who meet on Tuesday. The Fed's bond buying program has boosted
gold in recent months as investors worry that loose monetary
policy could eventually lead to a loss of purchasing power.
[]
In the COMEX futures markets, speculative buyers have
increased net longs, or bullish positions, by 2.3 percent in
the week to Dec. 7, while silver's net longs dipped 3.2
percent, CFTC's weekly Commitments of Traders report showed.
GOLD VULNERABLE AS VOLUME THIN
On charts, gold has hit selling pressure at $1,400 an
ounce, failing to stay above that level after hitting a record
high at $1,430.95 an ounce last Tuesday.
Adam Hewison, president of MarketClub.com, said gold could
rise further after breaking above key resistance at $1,394 an
ounce on a spot basis, which triggered a buy signal according
to his technical models.
Hewison, however, said gains near year end are vulnerable
to pullbacks as a small buy order could lift gold sharply
without significant volume as most traders are out.
U.S. Treasuries prices rose on Monday after an early
sell-off sent yields to their highest level in six months,
attracting buyers back into government debt. []
Last week, slumping U.S. government bond prices raised
yields, prompting some reallocation from precious metals to
fixed-income assets.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic showing correlation between gold and 10-year
Treasury yields: http://link.reuters.com/juh89q
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
A meeting of European Union leaders later this week is set
to pave the way for private sector investors to shoulder losses
in case of a sovereign debt restructuring, but delegates remain
divided on more concrete steps to shore up the region.
For now, gold's retreat from record highs has sparked
consumer demand from jewelers and physical investors, bullion
banks reported.
On the investment side of the gold market, holdings of the
world's largest gold-backed exchange-traded fund, New York's
SPDR Gold Trust <GLD>, declined by a further 3.95 tonnes on
Friday. []
The trust saw outflows of 8.2 tonnes of metal last week, or
0.6 percent of its total gold holdings, its biggest one-week
outflow since early October. It is still the world's
sixth-largest holder of gold, ahead of Switzerland and Japan.
Platinum <XPT=> rose 2 percent to $1,697.99 an ounce, and
palladium <XPD=> gained 3.5 percent to $753.72.
Prices at 2:55 p.m. EST (1955 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCG1> 1398.00 13.10 0.9% 27.5%
US silver <SIH1> 29.624 1.019 0.0% 75.9%
US platinum <PLF1> 1697.30 22.00 1.3% 15.4%
US palladium <PAH1> 752.45 19.75 2.7% 84.0%
Gold <XAU=> 1395.81 12.66 0.9% 27.3%
Silver <XAG=> 29.50 0.95 3.3% 75.2%
Platinum <XPT=> 1697.99 32.89 2.0% 15.9%
Palladium <XPD=> 753.72 25.44 3.5% 85.9%
Gold Fix <XAUFIX=> 1399.00 10.75 0.8% 26.7%
Silver Fix <XAGFIX=> 29.33 54.00 1.9% 72.6%
Platinum Fix <XPTFIX=> 1699.00 9.00 0.5% 15.9%
Palladium Fix <XPDFIX=> 761.00 15.00 2.0% 89.3%
(Additional reporting by Amanda Cooper and Jan Harvey in
London; Editing by David Gregorio)
