PRECIOUS-Gold drops 1.5 pct on Fed stimulus fears, Cyprus

Wed Apr 10, 2013 4:19pm EDT

* Some policymakers eye slowing purchases, Fed minutes show
    * Cyprus agrees to sell some gold reserves to raise cash
    * Goldman cuts price forecast 2nd time in less than 2 mos
    * Coming up: U.S. weekly initial jobless claims Thursday

 (Updates throughout, adds comments)
    By Frank Tang and Carole Vaporean
    NEW YORK, April 10 (Reuters) - Gold fell 1.5 percent on
Wednesday, its biggest one-day drop in 1-1/2 months, hit by
signs that the U.S. Federal Reserve is inching closer to ending
its monetary stimulus program and by  Cyprus's plan to sell its
gold reserves to raise cash.
    Panic selling sent gold down to near $1,550 an ounce earlier
in the session after European Commission documents showed Cyprus
plans to sell 400 million euros worth of gold reserves to
finance part of its bailout. 
    The metal later rebounded off its low as fears of more
official-sector sales subsided. Central banks as a group had
turned net buyers since 2010 as more emerging economies have
added gold to their reserves as a hedge against credit risk.
    Gold was also under pressure after minutes from the U.S.
Federal Reserve policy meeting in March suggested it was on
course to end its extraordinary bond buying stimulus by
year-end. 
    "The loose monetary policy around the world is clearly
favoring more on equity investments instead of gold," said
Michael Cuggino, portfolio manager of the $15 billion Permanent
Portfolio Funds.
    Spot gold was down 1.6 percent at $1,559.80 an ounce
by 3:29 p.m. (1929 GMT), its biggest one-day decline since Feb.
20.
    U.S. Comex gold futures for June delivery settled
down $27.90 an ounce at $1,558.80 an ounce.
    Trading volume was about 20 percent below its 30-day
average, preliminary Reuters data showed.
    The March payrolls report, which was released after the FOMC
meeting was held, showed weakness in the U.S. labor market,
prompting some analysts to express doubts about the probability
of the Fed reducing, or ending, its bond-buying program early.
    While the S&P 500 rose to a record high on Wednesday and was
up 11.4 percent year to date, gold was down 7 percent in the
same period.
    
    CYPRUS SELLS GOLD RESERVES
    Gold's losses snowballed after news of the Cypriot plan to
sell its gold, which marked the biggest euro zone bullion sale
in four years. 
    Although the third Central Bank Gold Agreement (CBGA3)
limits how much gold euro zone central banks can sell to meet
financing needs, investors are now worried other heavily
indebted euro zone members may also start selling.
 
    "The amount mentioned, 10 tonnes, is not large - we've seen
that on average come out of exchange-traded funds this year
every week," Macquarie metals analyst Matthew Turner said.
    "But it's the first euro zone country to have said it will
do this for a while," Turner said.
    Softer investor confidence in the metal after a fresh
outflow from the world's largest gold exchange-traded fund and a
second cut in Goldman Sachs' gold-price forecast in less than
two months also weighed on prices.
    "Funds are starting to think about their gold positions,"
said David Lee, metal trader at Heraeus Precious Metals
Management.  
    Among other precious metals, silver dropped 1 percent
to $27.65 an ounce, after it rallied 2.5 percent on Tuesday for
its biggest one-day rise since mid-February.
    Palladium was down 0.8 percent at $718, sharply off
an earlier three-month low, and platinum dropped 1.4
percent to $1,525.74 an ounce.
    
 3:29 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold JUN   1558.80 -27.90  -1.8  1556.40 1588.50  160,429
 US Silver MAY  27.653 -0.228  -0.8   27.445  27.965   49,558
 US Plat JUL   1529.80 -23.30  -1.5  1525.00 1550.60    9,234
 US Pall JUN    720.85 -12.15  -1.7   704.00  728.20    7,230
                                                               
 Gold          1559.80 -24.90  -1.6  1557.48 1588.30         
 Silver         27.650 -0.280  -1.0   27.540  28.010
 Platinum      1525.74 -21.26  -1.4  1527.00 1547.00
 Palladium      718.00  -5.50  -0.8   708.50  726.33
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        169,268   190,777   172,805     13.69   -0.25
 US Silver       62,528    48,066    52,296     20.16    0.12
 US Platinum      9,382    15,473    11,853     15.46    1.19
 US Palladium     7,325     5,363     5,229                  
                                                               
    

 (Additional reporting by Clara Denina in London; Editing by
William Hardy, Kenneth Barry and Peter Galloway)
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