PRECIOUS-Gold falls on weak commodities, option expiry eyed

* Gold takes breather after Friday's near 7-month high
* Futures investors could sell as Oct options set to expire
* Palladium records biggest one-day drop since March

(Adds details, graphic link, updates market activity)
By Frank Tang
NEW YORK, Sept 24 (Reuters) - Gold fell on Monday,
retreating from the previous session's nearly seven-month high
as broadly lower crude oil and grain prices prompted investors
to take profits.
Palladium dropped 4 percent for its biggest one-day decline
since March on signs of platinum output returning to normal in
top producer South Africa, triggering heavy speculative selling.
Traders said volatility could increase ahead of Tuesday's
U.S. COMEX gold option expiration, while open interest in U.S.
gold futures rose to a one-year high for a third straight
session.
Bullion's rally is showing signs of fatigue after five
straight weeks of higher prices. Repeated failures to break
above key technical resistance above $1,790 an ounce to set a
new 2012 high also prompted some investors to lessen their
bullish bets.
"There is no question that gold is consolidating its recent
gains, but every dip seems to be bought," said Anthony Neglia,
president of Tower Trading and COMEX gold options floor trader.

Gold could come under pressure as current prices may be too
far away to reach the popular $1,800 call strike at Tuesday's
option expiry, and that could prompt some disappointed futures
investors to sell, Neglia said. (COMEX options: link.reuters.com/sad82t)
Spot gold was down 0.6 percent at $1,762.20 an ounce
by 2:11 p.m. EDT (1811 GMT). On Friday, gold hit a high of
$1,787.20, just short of this year's peak of $1,790.30 reached
on Feb. 29.
U.S. COMEX gold futures for December delivery settled
down $13.40 an ounce at $1,764.60. Trading volume totaled around
150,000 lots, in line with its 30-day average, preliminary
Reuters data showed.
Silver fell 1.5 percent to $33.91 an ounce.
COMEX futures' open interest, which measures outstanding
long and short contracts, rose to a one-year high of 488,070
lots as of Friday. Open interest in U.S. gold futures has gained
about 25 percent in the past 30 days.
Weaker commodities, led by a sharp pullback in crude oil
amid a higher dollar, also weighed on gold.

GOLD ETF HOLDINGS APPROACH RECORD
Despite Monday's pullback, the price of gold has gained more
than 10 percent after the U.S. Federal Reserve this month said
it would buy $40 billion a month in mortgage-backed debt until
the job market outlook improves substantially.
"A lot of (investors) bought ahead of the announcement, and
now they're selling out again to lock in the gains," HSBC
analyst Howard Wen said.
Holdings of gold-backed exchange-traded funds tracked by
Reuters rose by nearly 330,000 ounces on Friday to 73.748
million ounces, climbing back toward the previous week's record
high. The bulk of inflows were seen into the world's largest
gold ETF, SPDR Gold Trust.
Platinum fell 1.2 percent to $1,617.49 an ounce,
while palladium slid 4.1 percent at $641.30 an ounce for
its biggest one-day drop since early March.
The premium added to platinum group metals by labor unrest
in South Africa has shrunk, analysts said. Weeks of
sometimes-violent protests killed 45 and sent platinum to
multi-month highs.
2:11 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold DEC 1764.60 -13.40 -0.8 1757.90 1775.30 123,655
US Silver DEC 33.984 -0.654 -1.9 33.630 34.585 42,759
US Plat OCT 1622.00 -15.60 -1.0 1608.00 1637.10 12,367
US Pall DEC 645.50 -26.05 -3.9 633.80 675.85 6,469

Gold 1762.20 -10.24 -0.6 1756.15 1772.89
Silver 33.910 -0.510 -1.5 33.650 34.520
Platinum 1617.49 -20.01 -1.2 1611.75 1630.49
Palladium 641.30 -27.30 -4.1 637.02 670.00

TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 148,535 149,108 183,635 17.33 0.14
US Silver 45,554 58,187 53,201 28.29 -0.87
US Platinum 20,356 19,084 9,341 23.47 -0.11
US Palladium 6,507 8,428 4,657

(Additional reporting by Jan Harvey in London; Editing by Phil
Berlowitz and Dale Hudson)
(Frank.Tang@thomsonreuters.com; +1 646 223 6126; Reuters
Messaging: frank.tang.thomsonreuters@reuters.net)