* China lifts benchmark interest rates by quarter-point
* Sell signal surfacing on gold chart, MACD crossover eyed
* Palladium seen as one of top picks among commods by UBS
(Recasts, updates with comments, graphic, market activity,
changes byline/dateline, previously LONDON)
By Frank Tang
NEW YORK, Oct 19 (Reuters) - Gold fell as much as 2.7
percent on Tuesday, set for its largest one-day fall since
early July, as the dollar surged after China unexpectedly
raised interest rates and the United States said it will not
devaluate the dollar.
After steadily rallying by nearly 20 percent since mid-July
to a record near $1,400 last week, analysts said bullion was
primed for a correlation and could be posed for more losses
after breaking below the bottom of its three-month rising
channel and a bearish cross-over in the MACD technical charts.
(Graphic: http://link.reuters.com/tus29p)
"We have been due for a correction in the gold and some
other commodity markets, and China's rate hike and Geithner's
statement provided the vehicle for the heavy selling in
commodities and currencies across the board," said Bill
O'Neill, partner at commodities firm LOGIC Advisors.
Prices dived in heavy trading volume after China surprised
markets with its first rate hike since 2007. Fearing more
aggressive monetary tightening in the world's fastest-growing
major economy, investors cut risk exposure by selling equities
and commodities to and buying the U.S. dollar.
Adding to the dollar index's percent 1.4 surge, its biggest
in more than a month, Geithner said on Monday the United States
would not devalue the dollar for export advantage.
Spot gold <XAU=> fell 2.1 percent to $1,340.05 an ounce at
1:06 p.m. EDT (1706 GMT). U.S. gold futures for December
delivery <GCZ0> fell $31.20 an ounce to $1,340.90.
Silver <XAG=>, which outperformed gold during the latest
three-month leg of the rally, dropped 2.2 percent to $23.82 an
ounce against $24.35, on course for its largest one-day fall
for a week, while the platinum group metals were more insulated
against the broad declines in the commodities sector.
China's decision to raise its benchmark one-year interest
rate put perceived risk currencies including the euro <EUR=>
and the Australian dollar <AUD=> under pressure, while knocking
the commodities complex. [] []
"Clearly it is the move in the dollar that's having
probably the biggest near-term impact on the commodities
complex and most notably the precious metals," said RBS
strategist Daniel Major.
"The prospect of higher rates in China or elsewhere clearly
has got longer term implications as gold can't compete once
yields do return to more traditional (levels)," Major said.
DOLLAR RALLY HITS GOLD
Gold, which is denominated in dollars, tends to move in the
opposite direction to the U.S. currency. The correlation
between bullion and the U.S. currency has increased to a
negative 0.76, its strongest inverse relationship in 10 months,
Reuters data showed.
On an hourly basis, the gold/dollar inverse correlation has
largely strengthened throughout Tuesday as the sell-off in gold
was accelerating.
Matthew Turner, an analyst at Mitsubishi Corp said China's
rate hike could point to a stronger yuan over the medium term,
which will reduce the need for the dollar to fall against other
currencies.
"Anything that alters the perceptions of where the dollar
and global monetary policy is headed is significant for gold at
the moment," Turner said.
Gold priced in euros <XAUEUR=R> and sterling <XAUGBP=R>
also fell after China's policy decision, by 1.1 percent and 0.9
percent, respectively.
Spot gold prices hit record highs at $1,387.10 an ounce
last Thursday, driven by concern over the stability of the
currency markets and by expectations for further U.S.
quantitative easing which could undermine the dollar.
While they have since corrected, the metal could receive a
boost as investors looked ahead to further monetary easing at a
meeting of the Federal Open Market Committee next month.
Credit Agricole analyst Robin Bhar said the FOMC and the
upcoming G20 meeting are potentially friendly toward gold and
could push the dollar lower.
Platinum <XPT=> fell 1.1 percent to $1,672.50, and
palladium <XPD=> was trading down 1.1 percent at $577.00.
Swiss bank UBS identified palladium on Tuesday as one of
its top picks among commodities. []
The metal has been one of the best-performing precious
metals this year, rising 44 percent.
Prices at 1:53 p.m. EDT (1753 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1336.00 -36.10 -2.6% 21.9%
US silver <SIZ0> 23.780 -0.633 0.0% 41.2%
US platinum <PLF1> 1677.60 -20.70 -1.2% 14.0%
US palladium <PAZ0> 578.45 -9.65 -1.6% 41.5%
Gold <XAU=> 1334.90 -33.55 -2.5% 21.8%
Silver <XAG=> 23.66 -0.69 -2.8% 40.5%
Platinum <XPT=> 1668.50 -21.50 -1.3% 13.9%
Palladium <XPD=> 573.50 -10.08 -1.7% 41.4%
Gold Fix <XAUFIX=> 1339.00 -28.75 -2.1% 21.3%
Silver Fix <XAGFIX=> 24.26 24.00 1.0% 42.8%
Platinum Fix <XPTFIX=> 1672.00 23.00 1.4% 14.1%
Palladium Fix <XPDFIX=> 571.00 15.00 2.6% 42.0%
(Additional reporting by Jan Harvey and Amanda Cooper in
London;editing by Sofina Mirza-Reid)
