* Talk of hedge fund liquidation hits markets
* Silver, platinum group metals decline sharply
* Fed may need to halt QE3 before jobs recovery-minutes
* Coming up: U.S. weekly initial jobless claims Thursday
(New throughout, updates prices and market activity, adds
By Frank Tang
NEW YORK, Feb 20 Gold tumbled 2.5 percent on
Wednesday to its lowest price since July after minutes of the
Federal Reserve's meeting last month showed the U.S. central
bank may have to slow or stop buying assets before a pick-up in
the job market.
Silver and platinum group metals also dropped sharply.
Before the Fed released its minutes, bullion was already
down sharply as rumors swirled that a large commodity hedge fund
had been forced to liquidate its holdings, which triggered a
broad sell-off in industrial commodities led by crude oil.
Selling accelerated after bullion slipped below two key
resistances at $1,600 and $1,575 an ounce. It completed a
bearish technical formation known as a "death cross", when its
50-day moving average broke below its 200-day moving average.
"It's clear the funds are not coming in to support the
market, and I don't see any physical interest either. There has
been a clear rotation out of gold and other commodities into
equities," said Bill O'Neill, partner of commodities investment
firm LOGIC Advisors.
Spot gold was down 2.5 percent to $1,564.05 an ounce
by 4:17 p.m. EST (2117 GMT), having hit $1,558.24, its lowest
since July 12.
U.S. gold futures for April delivery settled down
$26.20 at $1,578 an ounce, with trading volume about 50 percent
above its 250-day average, preliminary Reuters data showed.
The Federal Open Market Committee minutes said current U.S.
economic conditions might lead the policy-setting committee "to
taper or end its purchases before it judged that a substantial
improvement in the outlook for the labor market had occurred" .
The Fed voted last month to maintain its third round of
quantitative easing, known as QE3, at an $85 billion monthly
pace. It said it would buy bonds until it saw a substantial
improvement in the outlook for the labor market, which remains
under pressure with the jobless rate at 7.9 percent.
"People are taking a step back and asking themselves 'Is the
Fed going to stop quantitative easing earlier?'" said Axel Merk,
chief investment officer of Merk Funds which manages $630
million in mutual fund assets.
Minutes from the December meeting also showed some
policymakers had been mulling a lessening or complete withdrawal
of Fed stimulus.
ECONOMIC OUTLOOK IN FOCUS
Gold has been seesawing between hopes of central-bank easing
which boosted its inflation-hedge appeal, and expected economic
improvement which dent its safe-haven status, said Jeffrey
Sherman, commodities portfolio manager of DoubleLine Capital,
which manages more than $53 billion in assets.
"I do not think the Fed will stop asset purchases in the
calendar year," Sherman said.
Other money managers cited gold's pullback to anticipation
of a sharp move into equities and longer-yield Treasuries
because of a better global economic outlook.
U.S. equities fell on the Fed minutes on Wednesday, but the
benchmark S&P 500 index remained near its all-time high.
Silver fell 3.1 percent to $28.52 an ounce, platinum
dropped 2.6 percent to $1,644.25, and palladium
was down 3.3 percent at $735.97 an ounce.
4:17 PM EST LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold APR 1578.00 -26.20 -1.6 1558.10 1609.20 240,763
US Silver MAR 28.622 -0.800 -2.7 28.255 29.615 93,202
US Plat APR 1647.10 -50.40 -3.0 1636.10 1699.00 21,235
US Pall MAR 736.40 -27.75 -3.6 728.50 766.30 12,854
Gold 1564.06 -40.15 -2.5 1558.24 1609.21
Silver 28.520 -0.900 -3.1 28.310 29.640
Platinum 1644.25 -43.50 -2.6 1639.75 1696.00
Palladium 735.97 -25.25 -3.3 732.52 764.00
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 255,585 190,934 173,209 16.18 1.11
US Silver 129,739 51,535 52,552 23.18 1.53
US Platinum 21,709 14,478 11,126 17.32 -0.11
US Palladium 14,830 5,872 4,796
(Editing by Chizu Nomiyama and David Gregorio)