PRECIOUS-Gold drops, Fed move raises concern on stimulus scope

Thu Dec 13, 2012 3:19am EST

* Stop-loss selling triggered as prices dropped below key
level
    * Physical gold buying interest emerges below $1,700/oz
    * Coming up: U.S. retail sales, Nov; 1330 GMT

 (Updates prices)
    By Rujun Shen
    SINGAPORE, Dec 13 (Reuters) - Gold dropped about 1 percent
on Thursday after the Federal Reserve linked its monetary policy
to unemployment, raising concerns that future economic stimulus
could be limited.
    Gold benefits from easy monetary policy as it drives
investors who fear diminishing value in fiat currencies to seek
safety in hard assets such as bullion. Gold has risen nearly 9
percent so far this year. 
    The Fed said it plans to buy $45 billion in longer-term
Treasuries each month on top of the $40 billion monthly purchase
of mortgage-backed securities, as expected, but set unemployment
and inflation thresholds for exit strategy. 
    "This announcement is a bit confusing to gold investors as
it linked policy to unemployment, etc.," said a Tokyo-based
trader. "Perhaps the market wanted unlimited QE."
    Last month the U.S. unemployment rate dropped to a near
four-year low of 7.7 percent, although the better number was the
result of a lower number of job-seekers.  
    Spot gold dropped 1 percent to $1,693.80 an ounce
earlier in the day, before paring some losses to stand at
$1,699.20 by 0754 GMT. Fed's move to buy bonds had pushed up
prices to a near two-week top of $1,723.01 on Wednesday.
    When prices dropped below the 100-day moving average above
$1,705, stop-loss selling was triggered, traders said.
    The most-active U.S. gold futures contract lost as
much as 1.3 percent to $1,695.5 an ounce, and recovered to
$1,701.40. Nearly 38,000 lots already changed hands, higher than
what normally would be traded in Asian hours.
    Physical gold buying demand is expected to pick up after
prices fell below $1,700 level, traders said.
    "Physical demand seems to be supportive, but can't offset
all investor selling," said the Tokyo-based trader.
    
    GOLD SEEN BOUND IN A RANGE    
    But gold is likely to remain rangebound, as many investors
are closing books for the year, while the difficult U.S. budget
talks keep them away from big bets.
    The negotiation could drag on past Christmas given sharp
differences between congressional Republicans and the White
House on how to avert steep tax hikes and budget cuts.
 
    "The near term risk is a stronger dollar," said Jeremy
Friesen, commodity strategist at Societe Generale in Hong Kong.
"The 'fiscal cliff' is going right to the end, and that could
support the dollar and take some shine off gold." 
    The dollar, seen as an ultimate safe haven, is likely to
attract investors worried about the uncertainty in the U.S.
fiscal situation. A stronger greenback pressures dollar-priced
commodities by making them more expensive for buyers holding
other currencies. 
    In other metals, U.S. silver fell more than 2
percent to $32.88 an ounce, before paring losses to stand at
$33.06. Spot silver, which dropped nearly 2 percent to
$32.79 earlier in the session, was down 1.4 percent at $32.96.
    Spot platinum fell nearly 1 percent to $1,616.99,
easing from $1,643.50 hit on Wednesday, its highest since Oct.
19. Spot palladium eased to a one-week low of $679.72.
    
      Precious metals prices 0754 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1699.20  -12.35   -0.72      8.66
  Spot Silver        32.96   -0.48   -1.44     19.03
  Spot Platinum    1616.99  -15.76   -0.97     16.08
  Spot Palladium    684.47   -8.03   -1.16      4.90
  COMEX GOLD FEB3  1701.40  -16.50   -0.96      8.59        37535
  COMEX SILVER MAR3  33.06   -0.72   -2.14     18.43        10692
  Euro/Dollar       1.3088
  Dollar/Yen         83.51
  COMEX gold and silver contracts show the most active months
 
 (Editing by Himani Sarkar)
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