Gold down on Fed stimulus outlook, dollar rise

NEW YORK Thu Jul 12, 2012 3:50pm EDT

An employee picks up a gold bar at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011. REUTERS/Lisi Niesner

An employee picks up a gold bar at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011.

Credit: Reuters/Lisi Niesner

NEW YORK (Reuters) - Gold fell on Thursday on investor frustration over the U.S. Federal Reserve's lack of commitment to more monetary stimulus and the strength of the dollar.

The metal came under pressure as the market digested the minutes from the Fed's June meeting. They showed the Fed was open to buying more Treasury bonds to stimulate the economy, but the recovery might need to weaken further for a consensus to form.

"Investors remain cautious on indications that the Fed is unlikely to launch additional monetary stimulus until U.S. economic conditions weaken further," said Suki Cooper, precious metals analyst at Barclays Capital.

Gold has been particularly sensitive to central banks' monetary policies and, with Thursday's decline, is nearly flat for the year. In February it was up 15 percent after the Fed said it would keep interest rates near zero until late 2014.

Spot gold was down 0.6 percent at $1,567.02 an ounce by 2:48 p.m. (1848 GMT). It hit a session low of $1,554.34 earlier in the session.

U.S. COMEX gold futures for August delivery settled down $10.40 at $1,565.30 an ounce.

Trading volume was more than 5 percent above its 30-day average, preliminary Reuters data showed, the first time in about two weeks that turnover has exceeded the 30-day norm.

A U.S. government report on Thursday showed the number of Americans filing new claims for unemployment benefits fell to the lowest level in four years, which lifted the dollar to two-year highs against the euro and weighed on gold.

Bullion investors were disappointed that the Fed minutes released late Wednesday did not point to a greater appetite for QE3, or a third round of the asset-buying program known as quantitative easing, to keep interest rates low.

"While the prospects of QE3 taking place on some time scale are still reasonable, this is likely to remain the primary focus of the gold market," Mitsui Precious Metals strategist David Jollie said.

U.S. primary dealers surveyed ahead of the Fed policy meeting in June saw a new bond maturity-extension program, called Operation Twist, as the most likely tool for monetary easing, according to a poll by the Federal Reserve Bank of New York.

BULLISH CALL OPTIONS

On the gold options front, market positions suggested that investors are betting on a recovery in the price of the metal this month.

Open interest in COMEX August $1,600 calls has risen over the past week. These options give the holder the right, but not the obligation, to sell gold futures at this price by expiry on July 26.

A rise in open interest in calls above the underlying futures price suggests in theory that investors are betting on a price increase over the next couple of weeks.

In other precious metals, silver edged up 0.5 percent to $27.20 an ounce. Platinum fell by 0.9 percent to $1,411.25 an ounce, and palladium was down 0.4 percent at $575.25 an ounce. 2:48 PM EDT LAST/ NET PCT LOW HIGH CURRENT

(Additional reporting by Jan Harvey and Amanda Cooper in London; editing by Jim Marshall)

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