* Gold retreats after rally on China's move to unpeg yuan
* Bullion posts biggest one-day drop since May 19
* Central bank gold reserves rise in 1st qtr - trade group
* Coming up: U.S. May existing home sales report Tuesday.
(Recasts, adds comments, updates prices to market close,
changes byline, dateline; previous LONDON)
By Frank Tang
NEW YORK June 21 (Reuters) - Gold fell nearly 2 percent on
Monday, posting its biggest one-day drop in more than a month,
after a sudden decline of the euro prompted investors to take
profits from all-time highs set in earlier trading.
U.S. COMEX gold futures' open interest, an indicator of
overall market trading activity, climbed to an all-time high,
suggesting price volatility will remain high in the near term,
traders said.
Earlier in the session, gold rose to a record high above
$1,260 an ounce after China's decision to relax the yuan's peg
to the U.S. dollar, but analysts said the move also lifted
higher-risk assets which in turn undermined gold.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on gold's performance in various currencies:
http://link.reuters.com/hej33m
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Bill O'Neill, managing partner of New Jersey-based
commodities firm LOGIC Advisors, cited the pullback of the euro
and crude oil for gold's drop after the metal's initial rally
based on economic optimism.
"The dramatic reaction to China's news that we had earlier
in the session seems a bit overdone, and a lot of markets have
overreacted," O'Neill said.
Spot gold <XAU=> was at $1,236.25 an ounce at 2:20 p.m. EDT
(1820 GMT), against $1,255.35 late in New York on Friday. U.S.
gold futures for August delivery <GCQ0> settled down $17.60, or
1.4 percent, at $1,240.70.
Exchange data showed that COMEX gold open interest climbed
5,712 to 603,094 lots on Friday, surpassing its previous record
of 601,014 contracts set on May 17. []
"There is no question that volatility will be substantial
at record gold prices. That's one thing you can be sure,"
O'Neill said.
Bullion's losses of nearly 2 percent on Monday marked its
biggest one-day decline since May 19.
Last week, gold was up about 2.5 percent, the largest gains
in three weeks, as European contagion fears sparked safe-haven
demand.
"As long as doubts persist about the success of resolving
the debt crisis in Europe, investors are still trying to
protect their investments with gold and that should give gold
continued support," said Commerzbank commodities analyst Daniel
Briesemann. "The decline we've seen this afternoon should be
short-lived."
Gold prices are still 13 percent higher so far this year as
rising concerns over sovereign debt levels in Europe and the
prospect of further financial market instability has boosted
interest in the precious metal as a haven from risk.
Holdings of gold in the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust, hit a record of
1,307.963 tonnes as of June 17, while open interest in COMEX
gold futures rose last week to near all-time peaks as investors
rushed to snap up bullion.
The World Gold Council released data that showed global
central bank gold reserves rose 276.3 tonnes in the first
quarter of this year to 30,462.8 tonnes, with Saudi Arabia more
than doubling its reported holdings. []
Gold priced in currencies other than the dollar remained
below recent record highs.
Gold was pressured as the euro <EUR=> dropped 0.5 percent
versus the dollar after hitting its highest levels in about a
month after China's decision on the yuan. []
Global equities rose and safe-haven U.S. Treasuries came
under pressure after China's pledge to give its currency new
room to move appeared likely to ease political tensions with
the West and encourage investors to snap up riskier assets.
[]
Strength in industrial metals lifted silver, platinum and
palladium. Silver <XAG=> was at $18.78 an ounce against
$19.10.
Platinum <XPT=> was at $1,588.00 an ounce against
$1,585.50, having earlier hit its highest since May 20 at
$1,606.50 while palladium <XPD=> was at $491.50 against
$487.50. Earlier the autocatalyst metal hit a four-week high at
$503.
Platinum group metals retreated along with gold.
A weekly trade report by the U.S. Commodity and Futures
Trading Commission showed that speculators in New York platinum
and palladium futures lifted their net long positions in the
metals last week, with open interest in NYMEX palladium futures
Staging its largest weekly rise since late March.
Prices at 2:28 p.m. EDT (1828 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCQ0> 1240.70 -17.60 -1.4% 13.2%
US silver <SIN0> 18.808 -0.376 0.0% 11.7%
US platinum <PLN0> 1590.30 3.30 0.2% 8.1%
US palladium <PAU0> 495.45 4.05 0.8% 21.2%
Gold <XAU=> 1234.25 -21.10 -1.7% 12.6%
Silver <XAG=> 18.79 -0.31 -1.6% 11.6%
Platinum <XPT=> 1588.50 3.00 0.2% 8.4%
Palladium <XPD=> 490.50 3.00 0.6% 21.0%
Gold Fix <XAUFIX=> 1254.50 -5.00 -0.4% 13.6%
Silver Fix <XAGFIX=> 19.37 60.00 3.2% 14.0%
Platinum Fix <XPTFIX=> 1605.00 0.00 0.0% 9.5%
Palladium Fix <XPDFIX=> 502.00 4.00 0.8% 24.9%
(Additional reporting by Amanda Cooper and Jan Harvey in
London; editing by Jim Marshall)
