May 2, 2017

PRECIOUS-Gold near 3-wk lows on surging stocks, dollar strength

(Reuters) - Gold on Tuesday held near three-week lows hit in the previous session on diminishing demand for safe-haven bullion as Asian equities rallied and the U.S. dollar gained versus the yen. Spot gold was mostly unchanged at $1,256.77 per ounce, as of 0448 GMT. Bullion prices on Monday dropped 0.9 percent to $1,253.66 an ounce, its weakest since April 11.

U.S. President Donald Trump seemed to take some of the urgency out of geopolitical worries on Monday when he said he was open to meeting North Korean leader Kim Jong Un in the right circumstances. But that was followed on Tuesday by Pyongyang saying a U.S. bomber training drill had brought the Korean peninsula to the brink of nuclear war.

"The geopolitical concerns are receding but there are still chances of them coming back again. Gold will retrace but it will stay range bound for a while, before taking up any direction," said Richard Xu, a fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

U.S. gold futures were up 0.2 percent at $1,258 an ounce.

A pair of strategic U.S. bombers flew over the peninsula in a drill on Monday with the South Korean air force even as Trump said he was willing to meet with Kim.

"The one percent (on Monday) fall implies that the safe haven bid that has underpinned gold in recent times is rapidly eroding," said Jeffrey Halley, senior market analyst, OANDA.

"Gold is just shy of important daily support today in the shape of its 200-day moving average at $1,253. A daily close below here would be a bearish technical development," he said.

Also, the U.S. Federal Reserve starts a two-day policy meeting later in the day, and investors may be waiting for any direction from there.

"We don't see any new changes for the interest rate hike, which may be good for the non-interest bearing gold," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Interest rate futures are still showing a roughly 70 percent chance the Fed will raise rates in June, according to CME's FedWatch.

Asian shares rose to near two-year highs on Tuesday as optimism over tech industry earnings helped to offset softer-than-expected factory readings in China and the United States. Firmer equities discourage the buying of non-interest-paying bullion, which is priced in dollars.

The dollar edged up to a one-month high versus the yen as U.S. Treasury yields rose.  

Spot silver gained 0.3 percent to $16.89 an ounce. Silver fell over 2 percent to $16.78 an ounce on Monday, levels last seen on March 10.

Platinum was 0.7 percent higher at $932.10, after falling to a four-month low at $923 in the previous session.

Palladium fell about 0.3 percent at $812.