PRECIOUS-Gold down for day, but ends July with big monthly gain

Wed Jul 31, 2013 4:58pm EDT

* Gold has biggest monthly gain since January 2012
    * Fed says economy recovering, but needs support
    * GDP growth stronger than expected in 2nd quarter
    * Coming up: U.S. weekly jobless claims Thursday

 (New throughout, updates prices and market activity to monthly
close, adds more comments)
    By Frank Tang and Clara Denina 
    NEW YORK/LONDON, July 31 (Reuters) - Gold dropped in
volatile trading on Wednesday, tumbling early on
stronger-than-expected U.S. GDP data, then paring losses when
traders were relieved after the U.S. Federal Reserve ended a
policy meeting without any sign that its bond-buying program
would end soon.
    Bullion ended July with a monthly gain of more than 7
percent, its biggest since January 2012. The metal rebounded
this monthly after three sharp monthly declines.
    In a policy statement after its two-day meeting, the Fed
said the U.S. economy has been recovering but still needs
support. The U.S. central bank said it would keep buying $85
billion in mortgage and Treasury securities, citing challenges
such as a recent run-up in mortgage rates and federal
budget-tightening. 
    However, analysts noted that since gold pays no dividends or
interest, its price could remain under pressure due to its
ultra-sensitivity to interest rates.
    "The signal today the Fed is still on track toward tapering
indicates that at some point we will see higher interest rates,"
said Ed Lashinski, director of global strategy and execution for
RBC Capital Markets' futures group.
    "That's bearish for gold and it's going to limit the
market's ability to move a lot higher from here," said
Lashinski. He put the ceiling at the current rally at between
$1,330 and $1,350 an ounce.
    At a June news conference, Chairman Ben Bernanke said the
Fed would probably start to curtail its current round of bond
buying later this year, with an eye toward bringing it to a
close by the middle of 2014. 
    Financial market participants had widely anticipated a
reduction of purchases at the Fed's next meeting on Sept. 17-18.
    Spot gold was down 0.2 percent at $1,324.11 an ounce
by 4:15 p.m. EDT (2015 GMT). It traded as low as $1,305.30, the
weakest in more than a week, earlier in the day.
    Prior to the Fed statement, U.S. gold futures for August
delivery settled down $11.60 at $1,312.40 an ounce, with
trading volume about 5 percent above its 30-day average,
preliminary Reuters data showed. 
    
    LOW INFLATION
    Gold investors now digest the Fed's policy-setting
committee's comment regarding its concern about the low level of
inflation.
    "The committee recognizes that inflation persistently below
its 2 percent objective could pose risks to economic
performance, but it anticipates that inflation will move back
toward its objective over the medium term," the Fed said.   
    Earlier in the session, gold dropped nearly 1 percent after
unexpectedly strong U.S. economic growth in the second quarter
stirred fears the Fed will taper its monetary stimulus.
 
    The longer-term downtrend for gold will likely remain in
place as outflows have continued in gold-backed exchange-traded
products, said Robert Haworth, senior investment strategist at
U.S. Bank Wealth Management.
    Reuters data showed the world's top gold ETFs have lost
around a quarter of their bullion holdings from a record high
reached in December 2012. 
    Among other precious metals, silver gained 0.6
percent to $19.82 an ounce. Platinum was down 51 cens to
$1,433.99 an ounce and palladium edged down 0.3 percent
to $725.25 an ounce.

 4:15 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1312.40 -11.60  -0.9  1304.90 1338.40    6,127
 US Silver SEP  19.628 -0.052  -0.3   19.355  20.100   50,612
 US Plat OCT   1429.30  -8.20  -0.6  1418.40 1449.90    7,844
 US Pall SEP    726.35  -2.30  -0.3   722.30  738.85    3,827
                                                              
 Gold          1324.11  -2.58  -0.2  1305.30 1338.26         
 Silver         19.820  0.110   0.6   19.410  20.110
 Platinum      1433.99  -0.51   0.0  1420.00 1446.00
 Palladium      725.25  -2.02  -0.3   725.25  736.75
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        233,273   220,087   186,710     26.61    0.87
 US Silver       54,248    59,732    55,353      30.4    0.64
 US Platinum      7,933    14,696    12,545     23.79    0.00
 US Palladium     3,967     4,321     5,352                  
                                                              
 
 (Additional reporting by A. Ananthalakshmi in Singapore;
Editing by Dale Hudson, Mark Potter, David Evans, Peter
Galloway, Andre Grenon and David Gregorio)
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