October 29, 2014 / 11:01 AM / in 3 years

PRECIOUS-Gold falls as Fed focuses on bright U.S. economic outlook

* Fed view indicates early rate hike possible

* U.S. dollar rallies after FOMC

* Gold ETF holdings set for biggest monthly loss in ‘14 (Adds comment, updates market activities)

By Frank Tang and Clara Denina

NEW YORK/LONDON, Oct 29 (Reuters) - Gold prices fell nearly 1.5 percent on Wednesday as jittery bullion investors offloaded bullish bets after the U.S. Federal Reserve gave an upbeat outlook for jobs growth and it ended its years-long bond buying stimulus program.

The Federal Reserve on Wednesday ended its monthly bond purchase program, as expected, and signaled confidence the U.S. economic recovery would remain on track despite signs of a slowdown in many parts of the global economy.

Market watchers said the latest Federal Open Market Committee statement suggested the U.S. central bank could hike interest rates after it said that the slack in labor markets was “gradually diminishing.”

“That was a definite change that potentially indicates we could have a rate increase sooner than people were projecting. Clearly, that’s bearish for gold,” said Bill O‘Neill, partner of commodities investment firm LOGIC Advisors in Upper Saddle River, New Jersey.

Spot gold was down 1.4 percent at $1,210.20 an ounce by 3:22 p.m. EDT (1922 GMT), having touched a three-week low of $1,208.26.

Prior to the Fed announcement, U.S. COMEX gold futures settled down $4.50 an ounce at $1,224.90, with volume below its 30-day average, preliminary Reuters data showed.

After the end of a two-day meeting, the central bank’s policy committee said that it continued to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment.

The uncertainty over a lack of clarification on when it will hike interest rates triggered a knee-jerk selloff in gold, a fund manager said.

“It doesn’t appear we have too much guidance of what’s going to happen going forward, so everyone is reading tea leaves,” said Axel Merk, president and chief investment officer of the $400-million Merk Funds in Palo Alto, California.

Merk said, however, gold prices should be underpinned in the longer term as the Fed also said interest rates would remain low for a “considerable time” following the end of bond purchases.

A surging dollar against a basket of major currencies also weighed on gold.

Investment sentiment in bullion was already weak prior to the Fed statement. The world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, is on track for its biggest monthly outflow this year in October, with holdings currently down 26.3 tonnes, the largest since December.

Among other precious metals, spot silver fell 0.6 percent at $17.04 an ounce. Platinum dropped 0.5 percent to $1,255.75 an ounce, while palladium rose 0.3 percent to $791.75 an ounce. (Additional reporting by Manolo Serapio Jr. in Singapore; Editing by Jane Baird, David Evans, Nick Zieminski and Marguerita Choy)

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