Gold down but outperforms crude in commods sell-off

NEW YORK (Reuters) - Gold fell on Monday, outperforming tumbling crude oil and grain markets as economic uncertainty related to last week's monetary stimulus unleashed by U.S. Federal Reserve boosted the metal's safe-haven appeal.

The metal, a traditional inflation hedge, was down less than 1 percent even though oil plunged more than $5 in a few minutes on Monday afternoon in a rapid selloff and grain prices led by soybean futures slid. <O/R> <GRA/>

"Despite large-scale commodities liquidation, gold is supported in the high $1,700 range in a flight to quality," said Zachary Oxman, portfolio manager at futures brokerage TrendMax.

"This suggests there is a worry that inflation and devaluation of currencies due to central-bank actions are problematic."

Spot gold fell 0.7 percent to $1,757.69 an ounce by 3:34 p.m. EDT, having risen by 2 percent last week.

The metal has gained around 10 percent since late August on hopes that central bank stimulus around the world would revive a stagnant global economy.

U.S. COMEX gold futures for December delivery settled down $2.10 at $1,770.60 an ounce, with trading volume at about 40 percent below its 250-day average, preliminary Reuters data showed.

PHYSICAL, INVESTMENT DEMAND STRONG

Bullion largely traded flat before crude oil's sudden drop. A third round of bullion-friendly Fed bond-buying known as quantitative easing (QE), underpinned the metal - a traditional inflation hedge - to a fourth straight week of gain last week.

"Using QE2 as guidance for potential gains for gold prices, gold is likely to have priced in the bulk of its move higher," said Suki Cooper, precious metals analyst at Barclays Capital.

Cooper said that, however, a pick-up in physical demand in China and India and record-high holdings in gold-backed exchange-traded products suggest the metal is likely to hold onto its recent strength

Analysts said the U.S. central bank's unprecedented move to tie in monetary stimulus to economic conditions should benefit gold.

A Reuters poll showed the Fed will buy a total of $600 billion of bonds under its new stimulus program and will look for a U.S. unemployment rate of 7 percent before it halts the program.

Among other precious metals, silver fell 1.7 percent at $34.01 an ounce. Platinum dropped 1.9 percent to $1,662.74 an ounce, while palladium tumbled 3.3 percent to $674.20.

(Additional reporting by Amanda Cooper in London; Editing by Marguerita Choy and Andre Grenon)