PRECIOUS-Gold sinks 2.5 pct on new fears Fed may reduce stimulus

Fri Sep 20, 2013 3:55pm EDT

* St. Louis Fed president: tapering possible later in year
    * Option-related sales, technicals accelerate losses
    * Coming up: U.S. Chicago PMI, Dallas Fed manufacturing Mon.

 (Adds analyst comment, weekly performance, update markets
activity)
    By Frank Tang
    NEW YORK, Sept 20 (Reuters) - Gold sank 2.5 percent on
Friday as institutional investors sold aggressively after the
Saint Louis Fed president said the U.S. central bank might move
next month to reduce stimulus spending that has bolstered
bullion for years.
    Silver tumbled 5 percent and platinum group metals fell more
than 2 percent.
    Gold all but erased the 4.5 percent rise posted on Wednesday
after the Fed said it would continue its massive bond buying
program. That surprise decision triggered a buying binge that
sent gold to its biggest one-day gain in over a year. 
    Gold fell more than industrial commodities and equities,
which also slid on Friday, after St. Louis Fed President James
Bullard said the U.S. central bank could scale back its massive
bond buying program at an October meeting if data points to a
stronger economy. 
    "The gold market had rallied substantially on tapering being
taken off the table. Now Bullard's comments have injected some
uncertainty near term, and that has prompted a wave of selling
in the gold and the precious metals complex," said James Steel,
chief precious metals analyst at HSBC.
    Spot gold fell 2.4 percent to $1,331.20 an ounce by
3:32 p.m. EDT (1932 GMT).
    For the week, gold is now around 0.5 percent higher after
giving back most of Wednesday's 4.2 percent rise, its biggest
daily gain since June 2012.
    U.S. Comex gold futures for December delivery settled
down $36.80 an ounce at $1,332.50, with trading volume at about
10 percent above its 30-day average, preliminary Reuters data
showed.
    Option-related selling accelerated gold's decline, said
Comex gold options floor trader Jonathan Jossen, noting that
many participants exercised put options after heavy buying of
inexpensive puts following Wednesday's rally.
    Relatively thin volume during gold's rally this week also
suggested that gains could be short lived, Jossen said.
    In addition, a two-percent drop of open interest in Comex
gold futures on Wednesday showed the post-Fed rally was driven
by investors who bought back previously bearish bets instead of
new money, analysts said.
    Gold prices fell faster after declining below a key
technical support at $1,345 where the 50-day and 100-day moving
averages were converging, analysts said.
    
    FUND SELLING EYED
    Commodity hedge fund Clive Capital told investors it will
close down, the latest commodity fund to call it a day. It
blamed a lack of investment opportunities for its poor
performance and outflows. 
    Sean McGillivray, head of asset allocation at Oregon-based
Great Pacific Wealth Management, said there were some
"sell-the-rumor" type selling on Clive's news, as worries about
panic selling by funds could further pressure gold.
    A gauge of investor interest, holdings in the world's
largest gold exchange-traded fund, the SPDR Gold Trust,
rose 0.88 tonnes, or 0.1 percent to 912 tonnes on Thursday.
    Among other precious metals, silver slid 5.3 percent to
$21.82. Platinum was down 2.1 percent to $1,427.50 an
ounce, while palladium dropped 2.5 percent to $713.97 an
ounce.
    
 3:32 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold DEC   1332.50 -36.80  -2.7  1327.20 1368.40  175,307
 US Silver DEC  21.927 -1.365  -5.9   21.755  23.180   54,911
 US Plat OCT   1432.60 -40.40  -2.7  1427.80 1467.80   12,031
 US Pall DEC    721.95 -16.25  -2.2   715.30  738.40    4,214
                                                               
 Gold          1331.20 -33.19  -2.4  1328.73 1368.01         
 Silver         21.820 -1.210  -5.3   21.750  23.130
 Platinum      1427.50 -31.30  -2.1  1432.00 1464.50
 Palladium      713.97 -18.53  -2.5   718.27  735.00
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        188,914   160,768   180,237     21.39   -2.46
 US Silver       60,167    68,382    57,843     33.61   -4.59
 US Platinum     15,958    11,525    12,362     20.64    0.00
 US Palladium     4,456     6,906     5,886                  
                                                               
 
 (Additional reporting by Jan Harvey in London; Editing by Dale
Hudson, Keiron Henderson and David Gregorio)