* Gold posts 3.3 percent gain for week
* Rally loses steam as ETF holdings drop
* Fed tapering seen key to gold's long-term direction
* Coming up: US existing home sales Monday
(Adds analyst comment, second byline, dateline, updates market
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 18 Gold fell on Friday as
investors took profits after the previous session's 3 percent
rally on expectations the partial U.S. government shutdown will
lead the Federal Reserve to postpone tapering of its bond-buying
The precious metal was up more than 3 percent for the week,
its biggest weekly gain in two months. Heavy short covering
boosted gold prices after the Congress clinched an 11th-hour
deal earlier this week to pull the world's biggest economy back
from the brink of debt default.
However, gold's upward momentum faded on Friday, partly
after data showed holdings in the world's largest bullion
exchange-traded fund, SPDR Gold Trust, fell.
"It remains to be seen whether the investor community will
now restart their buying of various ETF's given that the Fed's
tapering intentions are now merely being postponed," said Edward
Meir, metals analyst at brokerage INTL FCStone.
Gold-backed ETF holdings are often seen as a gauge of
Spot gold fell 0.4 percent to $1,313.68 an ounce by
1:41 p.m. EDT (1741 GMT).
U.S. Comex gold futures for December delivery settled
down $8.40 an ounce at $1,314.60, with volume at just 100,000
lots, about 40 percent below its 30-day average, preliminary
Reuters data showed.
The metal leapt 3 percent on Thursday after the deal to
re-open the U.S. government and a downgrade to the country's
sovereign rating by a Chinese credit rating agency knocked the
dollar, prompting a rush among over-extended shorts to cover.
"Once the government re-opened and the agenda moved on from
the debt crisis to next week's Federal Reserve meeting, that was
a trigger for gold to see some upside," Mitsubishi analyst
Jonathan Butler said.
However, in the long run, gold is likely to sell off as soon
as talks of Fed tapering resume, Butler said.
Gold's 20 percent drop this year has largely been after Fed
Chairman Ben Bernanke signalled earlier this year the central
bank's $85 billion monthly bond-buying scheme - which had driven
gold higher by keeping a lid on interest rates while stoking
inflation fears - will be tapered.
ETF HOLDINGS DROP
Investment interest in gold remained lackluster, as the SPDR
Gold Trust reported another 3.3-tonne drop in its holdings
The fund posted a fourth straight week of outflows. Its
holdings have fallen more than 35 percent from their December
2012 peak, and are down nearly 3 percent this month.
Among other precious metals, silver edged up 0.1
percent to $21.87 an ounce. Platinum was up 0.1 percent
at $1,431.10 an ounce and palladium slipped 0.1 percent
to $737.72 an ounce.
1:41 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold DEC 1314.60 -8.40 -0.6 1311.20 1328.90 92,468
US Silver DEC 21.913 -0.034 -0.2 21.740 22.050 21,878
US Plat JAN 1437.80 2.90 0.2 1429.00 1446.60 8,404
US Pall DEC 740.65 2.85 0.4 733.00 742.55 4,447
Gold 1313.68 -5.41 -0.4 1312.23 1325.21
Silver 21.870 0.030 0.1 21.760 22.010
Platinum 1431.10 1.20 0.1 1432.25 1440.74
Palladium 737.72 -0.78 -0.1 736.77 740.00
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 98,649 161,919 190,244 21.08 -0.49
US Silver 22,481 44,446 56,457 32.11 -1.78
US Platinum 8,462 14,365 13,017 22.19 0.00
US Palladium 4,497 3,832 5,774
(Additional reporting by A. Ananthalakshmi in Singapore;
Editing by William Hardy, Pravin Char and Andrew Hay)