December 12, 2013 / 4:10 PM / 6 years ago

PRECIOUS-Gold tumbles 2 pct as US retail sales data boosts dollar

* Upbeat U.S. data bolsters view of early stimulus reduction
    * Dollar rallies on positive U.S. economic outlook
    * SPDR Gold Trust holdings drop, investment demand lags
    * Coming up: U.S. producer prices Friday

 (New throughout, updates prices, market activity, adds comment
from options trader, news on U.S. budget deal)
    By Frank Tang and Julia Fioretti
    NEW YORK/LONDON, Dec 12 (Reuters) - Gold prices fell 2
percent on Thursday as upbeat U.S. retail sales data boosted the
dollar and stoked expectations that the Federal Reserve could
reduce its bond-buying stimulus soon.
    Bullion posted its biggest two-day drop since Oct 1. Silver
slid 4 percent, while platinum group metals also fell sharply.
    U.S. retail sales rose solidly in November, another sign of
a strengthening economy after last week's better-than-expected
U.S. nonfarm payrolls and GDP data, which could encourage the
Fed to ratchet back stimulus efforts. 
     A two-year U.S. budget deal cleared a procedural hurdle in
the House of Representatives on Thursday, with passage expected.
 A budget deal should also move the Fed toward
tapering its $85 billion a month bond-buying program.
 
    "With the possibility of the budget debate behind us, it
could bring to the forefront that the Fed is one step closer to
tapering at its December meeting next week," said David Meger,
director of metals trading at Chicago futures brokerage Vision
Financial Markets.
    Spot gold fell 2 percent to $1,226.86 an ounce by
2:13 p.m. EST (1913 GMT). Earlier in the session, gold hit a
session low of $1,223.60 an ounce, holding just about $10 above
a five-month low reached last week.
    U.S. Comex gold futures for February delivery settled
down $32.30 at $1,224.90, with trading volume about 15 percent
above its 30-day average, preliminary Reuters data showed.
    Gold erased its gains made earlier in the week, when it hit
a three-week high of $1,267.26 on Tuesday. But Comex gold option
traders said they saw trades in their market suggesting that
some investors were bullish on underlying gold futures.
    Expectations that the Fed will taper its stimulus program
have helped knock gold 25 percent lower this year. Ultra-loose
monetary policy is seen as bullion-friendly, as it keeps
interest rates at rock bottom while stoking inflation fears.
    But the brightening U.S. economic picture and a stronger
dollar, up 0.4 percent versus a basket of currencies,
punctured the rally.

    PHYSICAL, INVESTMENT DEMAND SOFT
    In the physical markets, buying in major consumer India
remained soft on Thursday as dealers struggled to source metal.
 
    Investor interest remained lacklustre, with holdings of the
world's largest gold-backed exchange-traded fund, New York's
SPDR Gold Shares, down 2.1 tonnes on Wednesday. 
    This year has seen heavy liquidation of gold ETF holdings,
with the SPDR's holdings dropping by more than 500 tonnes to
their lowest in nearly five years.
    Among other precious metals, silver dropped 3.9
percent to $19.48 an ounce. Platinum was down 1.4 percent
to $1,360.74 and palladium down 2.7 percent to $715.25.
    
 2:13 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold FEB   1224.90 -32.30  -2.6  1222.60 1256.50  142,001
 US Silver MAR  19.453 -0.903  -4.4   19.410  20.345   43,661
 US Plat JAN   1364.40 -20.80  -1.5  1359.00 1387.70   12,281
 US Pall MAR    720.25 -18.30  -2.5   714.40  738.30    4,115
                                                               
 Gold          1226.86 -24.49  -2.0  1224.60 1257.20         
 Silver         19.480 -0.790  -3.9   19.460  20.330
 Platinum      1360.74 -19.01  -1.4  1364.75 1386.75
 Palladium      715.25 -20.00  -2.7   716.25  736.00
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        149,930   173,625   188,297     20.87    0.98
 US Silver       45,809    60,028    57,804     27.15   -0.71
 US Platinum     17,302    10,104    12,498     16.22   -0.01
 US Palladium     4,120     7,530     5,935     20.22   -0.35
                                                               
 
 (Additional reporting by Jan Harvey and Clara Denina in London;
editing by Keiron Henderson and Meredith Mazzilli)
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