LONDON, April 23 (Reuters) - Palladium sank 5 percent on
Monday amid U.S. hints it might relieve sanctions on Russia's
Rusal          , while gold hit a two-week low as investors
piled into the dollar with U.S. Treasury yields approaching 3
    The United States said it could give sanctions relief to
Russian aluminium giant Rusal if Oleg Deripaska cedes control of
the company, easing fears Washington might extend sanctions to
major palladium producer Nornickel          .              
    Nornickel, by far the world's largest palladium producer, is
linked with both Rusal and Deripaska, and fears it might be
targeted by U.S. sanctions had sent prices soaring since April
6, when sanctions were imposed. 
    Spot palladium        dropped more than 5 percent to a
session low of $978.22 an ounce, and traded down 4.8 percent at
$980.30 at 1249 GMT. Spot gold        fell 0.7 percent to
$1,324.81 per ounce, having touched a two week low of $1,323.61.
    The U.S. dollar rallied to a seven-week high after a rise in
the yield on 10-year U.S. Treasuries             to within a
whisker of the psychologically important 3-percent level. A
stronger dollar makes dollar-priced gold costlier holders of
other currencies.                    
    "If we break above (3 percent) it will be first time in 5
years this has happened and this increases opportunity cost of
holding (non-yielding) gold," said Mitsubishi analyst Jonathan
    But he said the reason yields were rallying was because
interest rates were expected to climb due to rising inflation.
    "If inflation is rising, gold provides a hedge," he said,
adding there was also longer term upside for gold from
geopolitical tensions and a U.S. currency stuck in a long-term
downtrend as global central banks begin raising rates.
    U.S. gold futures         fell 0.8 percent to $1,327.10 per
    Gold, seen as a safe haven in times of political turmoil,
was also under pressure after North Korea said at the weekend it
would suspend nuclear and missile tests before planned summits
with South Korea and the United States. 
    Added to this were signs that U.S. China relations might be
    Speculators raised their net long or buy positions in COMEX
gold by 5,382 contracts to 143,594 contracts in the week to
April 17, U.S. data showed on Friday.             
    Spot silver        fell 2 percent to $16.77 per ounce while
platinum        was down 0.5 percent at $918.60 an ounce, having
hit a two week low of $910.75.
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