PRECIOUS-Gold falls after 3-day rise; eyes on next Fed move

Wed Dec 11, 2013 4:15pm EST

* U.S. budget deal seen strengthening case for early taper
    * Gold rally pauses after move to cover short positions
    * Room for further gains; Focus on Fed meeting Dec. 17-18
    * Coming up: U.S. retail sales Thursday

 (Adds analyst comment, updates market activity)
    By Veronica Brown and Julia Fioretti
    LONDON/NEW YORK, Dec 11 (Reuters) - Gold prices fell on
Wednesday after a three-day rally driven by investors
short-covering, as a tentative U.S. budget deal supported
expectations for an earlier reduction in U.S. monetary stimulus.
    The bipartisan budget deal announced in the U.S. Congress on
Tuesday is expected to end three years of impasse and fiscal
instability in Washington that culminated in October with a
partial government shutdown. 
    "The budget agreement in Congress is removing some of the
uncertainty that potentially persuaded the Fed not to taper back
in October when they had the chance," said Saxo Bank's head of
commodity strategy, Ole Hansen.
    Spot gold was 0.6 percent lower at $1,252.50 an ounce
by 3:59 PM EST (2059 GMT), having hit its highest in three weeks
on Tuesday. 
    U.S. gold futures for February delivery settled down
$3.90 at $1,257.20, with trading volume about 30 percent below
its 30-day average, preliminary Reuters data showed.     
    Trading has been volatile over the past week, with a
short-covering rally following a slide in prices to a five-month
low last week on better-than-expected U.S. employment data.    
    The jobs report fueled expectations that the Federal Reserve
was soon to taper its bullion-friendly bond-buying stimulus. 
    However some analysts said the market was becoming less
sensitive to speculation about the timing and speed of tapering
by the Fed.
    "Trading is bound to be increasingly cautious, with
investors becoming more and more defensive. Given diminishing
liquidity conditions heading into year-end, choppy price action
should remain a feature for the remainder of 2013," said UBS
precious metals analyst Joni Teves. 
    The U.S. central bank is due to meet on Dec. 17-18. Most
economists polled by Reuters expected the Fed to start tapering
its monthly bond buying programme from March, although some
warmed to the possibility of an earlier move following recent
strong economic data. 
    Other precious metals were mostly lower in line with gold.
Silver was down 0.4 percent on the day at $20.27 an
ounce, while platinum was down 0.2 percent at $1,381.75
and palladium edged up 0.1 percent to $736.25. 
    Platinum eased despite rising labor tensions in South
Africa, the world's biggest producer of platinum.  
    The country's Association of Mineworkers and Construction
Union has been given permission by a government mediator to call
a strike over wages against world No. 3 platinum producer Lonmin
, the union said on Tuesday. 
 3:59 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold FEB   1257.20  -3.90  -0.3  1251.30 1263.20  110,171
 US Silver MAR  20.356  0.041   0.2   20.210  20.480   30,495
 US Plat JAN   1385.20  -3.50  -0.3  1381.10 1391.70    6,956
 US Pall MAR    738.55   0.10   0.0   736.75  742.35    1,970
                                                              
 Gold          1252.50  -7.75  -0.6  1251.80 1263.00         
 Silver         20.270 -0.080  -0.4   20.260  20.460
 Platinum      1381.75  -3.00  -0.2  1385.75 1390.75
 Palladium      736.25   1.05   0.1   738.00  739.25
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        116,188   175,606   188,368     19.82    0.06
 US Silver       32,588    60,233    57,780     27.86    0.70
 US Platinum      9,083     9,999    12,488     16.23   -1.48
 US Palladium     1,976     7,650     5,936     20.57   -0.31
                                                              
   

 (Additional reporting by Frank Tang in New York and A.
Ananthalakshmi in Singapore; Editing by Jane Baird, Anthony
Barker and Krista Hughes)