* Gold set for biggest fall in a month
* Dollar firms after spike in U.S. Treasury yields
* U.S. palladium ETF holdings reach new record high
(Updates throughout with comment, refreshes prices)
By Amanda Cooper and Jan Harvey
LONDON, Dec 8 (Reuters) - Gold was set for its largest
one-day fall in a month on Wednesday after initial weakness
stemming from a stronger dollar was exacerbated by a flurry of
profit-taking a day after the metal reached a record peak.
Gold hit an all-time high at $1,430.95 an ounce on Tuesday
as risk aversion flared in the euro zone, but has now fallen by
about 3.8 percent after the rally ran out of steam.
Spot gold <XAU=> was bid at $1,375.02 an ounce at 1600 GMT,
against $1,400.86 late in New York on Monday, 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> fell $36.0 an
ounce to $1,373.10.
"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," he added.
"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."
Setting gold on the backfoot early in the day was a rally in
the dollar, after a 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.
"Clearly there is a more risk-negative tone across the
markets today, but I don't think it's been enough to push people
into gold's safe-haven qualities," said RBS analyst Daniel
Major.
"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," he said.
Benchmark 10-year Treasury yields <US10YT=RR> fell by more
than a point on the day, forcing yields to six-month highs above
3.25 percent. []
The rise in Treasury yields is 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.
This set the euro on track for a third straight day of
losses. While this has weighed on gold, the metal has proved it
can break its inverse link with the dollar if worries over euro
zone debt lifts its safe-haven appeal while pressuring the euro.
On the investment front, holdings of the world's largest
gold-backed exchange-traded fund, the SPDR Gold Trust <GLD>,
eased to 1,297.726 tonnes by Dec 7 from 1,298.030 tonnes a day
before. []
The world's largest silver ETF, iShares Silver Trust <SLV>,
said its holdings hit another record at 10,941.34 tonnes by
Wednesday. []
Silver <XAG=> was bid at $28.09 an ounce against $28.66,
still well off the 30-year high at $30.68 it reached on the
previous day, causing the gold/silver ratio in turn to pull back
from its recent near-four year low.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic showing the evolution of the gold-silver ratio,
click on: http://r.reuters.com/wyk88q
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Platinum <XPT=> was at $1,671.74 an ounce against $1,688.50,
while palladium <XPD=> was at $718.22 versus $729.97.
ETFS Physical Palladium Shares, the New York-based palladium
exchange-traded product operated by ETF Securities, said its
holdings hit a record 1.084 million ounces on Tuesday, having
broken through a million ounces for the first time a day before.
(Additional reporting by Jan Harvey; editing by Keiron
Henderson)
