July 17, 2013 / 9:53 AM / 7 years ago

REFILE-PRECIOUS-Gold tumbles as Bernanke sees Fed tapering later this year

(Corrects to Wednesday from Tuesday in first paragraph)
    * Bullion briefly trades above $1,300, first time in 3 weeks
    * John Paulson bullish on gold on inflation play
    * Trading volume highest so far in July
    * Coming up: U.S. jobless claims, Philly manufacturing Thurs

    By Frank Tang and Jan Harvey
    NEW YORK/LONDON, July 17 (Reuters) - Gold fell more than 1
percent on Wednesday after Federal Reserve  chief Ben Bernanke
said the U.S. central bank still expects to start scaling back
its massive bond purchase program later this year.
    Bullion briefly rose above the $1,300 mark after Bernanke
said in testimony before a congressional committee that he left
open the option of changing stimulus exit plans if the economic
outlook grew worse. 
    However, the rally quickly faded after Bernanke reiterated
that the Fed would likely reduce its program of buying $85
billion of bonds a month, known as quantitative easing, later in
2013 and halt it altogether by mid-2014.
    "The market has woken up to the fact that we are seeing the
end of tapering and the potential end of QE, and that takes the
blush off the rose," said Frank McGhee, head of precious metals
trader at Integrated Brokerage Services LLC.
    Spot gold fell 1.3 percent to $1,275.84 an ounce by
3:24 p.m. EDT (1924 GMT), sharply below a session high at
$1,300.16 an ounce. It marked the first time gold rose above 
$1,300 in three weeks.
    U.S. gold futures for August delivery settled down
$12.90 to $1,277.50 an ounce, with volume at around 255,000
lots, the highest so far in July, preliminary Reuters data
    Hedge fund manager John Paulson said gold is a potential
hedge against inflation, which will rise over time. Paulson is
the largest shareholder of the world's No. 1 gold-backed
exchange-traded fund SPDR Gold Trust. 
    Speaking at the CNBC Institutional Investor Delivering Alpha
Conference, Paulson, whose gold fund has lost more than half of
its value so far this year, said that "the rationale for owning
gold is valid." because inflation will rise over
    In response to Paulson, Sean McGillivray, head of asset
allocation at Great Pacific Wealth Management, said the gold
market is often "irrational" and can move in the opposite
direction to market fundamentals.
    Gold has fallen nearly 25 percent this year, hurt by fears
the Fed is set to curb its bond buying. The Fed's purchases have
driven gold to record highs by pressuring long-term interest
rates while stoking fears about inflation. 
    Fed policymakers earlier this year indicated that the U.S.
central bank could rein in its stimulus program, but Bernanke's
comment last week about the need to keep an accommodative
monetary policy triggered a gold rally.
    Gold would only rally further if the Fed's bond purchases
were to continue longer than expected or increase, but neither 
of the scenarios is likely after Bernanke's comments, McGhee
    However, if U.S. Treasuries yields rise and data about the
U.S. housing market proves disappointing, the Fed is less likely
to taper its stimulus efforts, said Axel Merk, chief investment
officer at Merk Funds, with about $500 million in mutual fund
    Among other precious metals, silver fell 3.4 percent
to $19.31 an ounce. Platinum was down 1.4 percent to
$1,403.74 an ounce, while palladium eased 0.3 percent to
$731.22 an ounce.
 3:24 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1277.50 -12.90  -1.0  1269.30 1299.70  209,112
 US Silver SEP  19.420 -0.515  -2.6   19.230  20.180   55,245
 US Plat OCT   1411.00 -14.10  -1.0  1402.80 1434.60    8,423
 US Pall SEP    735.45  -0.15   0.0   729.85  739.25    3,638
 Gold          1275.84 -16.15  -1.3  1271.18 1300.16         
 Silver         19.310 -0.670  -3.4   19.290  20.130
 Platinum      1403.74 -19.76  -1.4  1404.50 1430.50
 Palladium      731.22  -2.28  -0.3   733.00  736.50
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        252,028   193,250   179,327      23.4    0.66
 US Silver       58,390    65,594    56,395     29.96   -0.64
 US Platinum      8,865    15,874    13,075     26.47   -0.53
 US Palladium     3,690     4,335     5,470                  

 (Additional reporting by Clara Denina in London; editing by
James Jukwey, Nick Zieminski and Kenneth Barry)
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