PRECIOUS-Gold drops below $1,400, on track for second monthly gain

Fri Aug 30, 2013 2:23pm EDT

* Gold briefly cuts losses during Kerry TV address

* Gold on track for 5.6 percent monrhly gain

* Dollar rises to 4-week high on downbeat euro data

* U.S. markets closed Monday for Labor Day holiday (New throughout, updates prices and market actvity; changes byline, dateline.)

By Carole Vaporean

NEW YORK, Aug 30 (Reuters) - Gold slid below $1,400 an ounce on Friday as the dollar rallied to a four-week high and investors squared positions at the end of the month and cashed in on a recent run-up ahead of a long U.S. holiday weekend.

Gold, which remained on track for a 5.6 percent monthly gain, briefly trimmed its decline in the afternoon as U.S. Secretary of State John Kerry was making a broad case for U.S. military action against Syria. But prices fell back to pre-speech level before he finished his televised address.

Kerry made a case for limited U.S. military action against Syria for its suspected use of chemical weapons, saying it could not go unpunished for such a "crime against humanity." But he said any U.S. action would be carefully tailored and would not in any way resemble the invasions of Afghanistan and Iraq.

Spot gold was down 0.83 percent at $1,395.91 an ounce by 1:51 EDT (1751 GMT), after slipping to a session low of $1,392.06 an ounce. During Kerry's address, gold had retraced some losses and was about 0.40 percent lower.

U.S. gold futures for December delivery traded $16.90 an ounce lower at $1,396 an ounce, down 1.20 percent.

The precious metal slid below $1,400 an ounce early, as the dollar rallied to a four-week high against the euro following soft euro zone economic readings.

"Gold is under pressure from a firm U.S. dollar and lower oil prices after the West debates whether to attack Syria," Commerzbank analyst Eugen Weinberg said.

While tensions over Syria kept investors on edge, James Steel, chief precious metals analyst at HSBC in New York said month-end book squaring and the upcoming long U.S. weekend was likely adding volatility to the market.

"Geopolitical rallies tend not to buoy the market unless there's further deterioration. In this case, it would be military action," Steel said.

As of Wednesday, the latest rally had lifted gold to a 3-1/2 month high of $1,433.31. Bullion was headed for its second straight monthly gain, a rally that analysts said was driven largely by investors covering short positions.

"The move higher in August was driven mostly by short-covering and opportunistic buying, which seems to have now run out of steam," VTB Capital analyst Andrey Kryuchenkov said.

The U.S. dollar rose to a four-week high against a basket of major currencies, helped by the persistent uncertainty about Syria and a weak euro that has struggled in the wake of soft euro zone economic data.

Data showing the pace of business activity in the U.S. Midwest rose to 53.0 from 52.3 in July, matching economists' expectations, also helped the dollar and pressured gold.

But the index for prices paid within the Midwest series rose to its highest since November. Analysts said they made note of the inflation signal as feeding into expectations the Federal Reserve could soon taper its monetary stimulus.

An earlier report, however, a soft consumer spending reading ticked up just 0.1 percent, less than an expected 0.3 percent rise.

Investors are scrutinizing economic data to gauge the strength of economic recovery to better estimate when the U.S. central bank will begin curbing its $85 billion per month bond-buying programme.

An early end to the stimulus could stunt demand for assets like gold that had been boosted by central bank liquidity over the past four years.

Brent crude oil slipped below $115 a barrel after strong gains earlier in the week. The positive correlation between gold and oil has risen in the past few sessions as gold is seen as a hedge against oil-led inflationary pressures.

Higher gold prices in August deterred buyers who splurged on jewellery, bars and coins earlier this year.

In Hong Kong gold kilo bar premiums declined to $2.50 an ounce from $5 two weeks ago. Tokyo premiums fell to 50 cents from $1.50. Those in Singapore dropped to $1.50.

Silver declined 1.64 percent to $23.44 an ounce. Spot platinum rose to $1,518.20 an ounce, while spot palladium fell 1.91 percent to $719.97 an ounce. (Additional reporting by Josphine Mason in New York, Clara Denina in London, A. Ananthalakshmi in Singapore; Editing by William Hardy, Jane Baird and David Gregorio)