Gold falls on weak commodities, option expiry eyed

NEW YORK (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 February 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)