PRECIOUS-Gold falls, Fed asset purchases in focus

Mon Jan 7, 2013 7:25pm GMT

* Weaker equities pressure gold
    * Bullion could rebound if economy remains weak
    * Coming up: U.S. consumer credit Tuesday


    By Frank Tang
    NEW YORK, Jan 7 (Reuters) - Gold dropped on Monday as
uncertainty about the duration of the Federal Reserve's economic
stimulus program decreased bullion's appeal as a hedge against
inflation.
    The metal remained under pressure after two top Fed
officials on Friday suggested the U.S. central bank may halt its
bullion-friendly asset purchases by the end of 2013 due to a
better economic outlook. 
    "Any time there is any concern about Fed tightening, those
nervous gold investors leave the market very quickly," said
James Dailey, portfolio manager of TEAM Financial Asset
Management.    
    However, signs of disappointing U.S. economic growth suggest
the Fed will not change course any time soon, Dailey said.
    Gold, used by investors as a hedge against inflation brought
about by central-bank stimulus, has been particularly sensitive
to any indications that the Fed might end its purchases of
Treasury securities and mortgage-backed securities. 
    Losses in U.S. stocks on speculation about weaker corporate
earnings also dragged gold prices lower, analysts said. 
    Spot gold was down 0.6 percent at $1,646 an ounce by
1:59 p.m. EST (1859 GMT) 
    U.S. gold contract for February delivery settled down
$2.60 at $1,646.30, with trading volume 20 percent below its
30-day average, preliminary Reuters data showed.    
   On Friday, bullion ended sharply off its 4-1/2 month low near
$1,625 after a Labor Department report showed the U.S. jobless
rate held steady at 7.8 percent in December.
    The Fed is currently buying $40 billion in mortgage-backed
securities and $45 billion in Treasuries each month in a bid to
push down borrowing costs and spark faster growth. It has said
the program will continue until it sees a sustained upturn in
the jobs market.

    FED IN FOCUS
    Analysts said the price of gold could quickly rebound if
data suggests the pace of the U.S. economic recovery is too slow
to justify withdrawal of Fed stimulus.
    "It's difficult to make assumptions ... whether the FOMC
minutes represent a material change of monetary policy from the
Fed, and we are well aware that an off-the-cuff remark by Fed
Chairman Bernanke could reverse the markets in an instant," TD
Bank strategists said in a note. 
    On Friday gold slid to its lowest level since late August
after minutes from the December meeting of the Federal Open
Market Committee showed several top officials favored slowing or
stopping the stimulus program "well before" the end of the year.
    Among other precious metals, silver was down 0.5
percent to $30.07 an ounce. Platinum eased 0.2 percent to
$1,549.50 an ounce, and palladium dropped 2.2 percent to
$667.72 an ounce.
 1:59 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold FEB   1646.30  -2.60  -0.2  1642.60 1663.00  124,686
 US Silver MAR  30.082  0.136   0.5   29.860  30.475   31,994
 US Plat JAN   1553.80  -1.40  -0.1  1549.20 1566.70       64
 US Pall MAR    670.00 -18.50  -2.7   663.20  692.55    4,636
                                                               
 Gold          1646.00 -10.45  -0.6  1643.36 1662.10         
 Silver         30.070 -0.140  -0.5   29.860  30.440
 Platinum      1549.50  -2.60  -0.2  1552.50 1566.25
 Palladium      667.72 -15.08  -2.2   667.52  690.25
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        139,675   158,911   174,102     13.77    0.22
 US Silver       35,625    49,861    52,968      23.9    2.03
 US Platinum      7,492    13,915    10,461      16.8   -0.01
 US Palladium     4,855     5,032     4,804
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