December 20, 2013 / 11:36 AM / 6 years ago

PRECIOUS-Gold up, but on track for biggest annual loss in 32 years

* Gold turns higher after early drop to 6-month low
    * Fed stimulus cut, expected narrower U.S. deficits weigh
    * More outflows from SPDR Gold Trust exchange-traded fund
    * Coming up: U.S. CFTC Commitments of Traders report Friday

    By Frank Tang and Clara Denina 
    NEW YORK/LONDON, Dec 20 (Reuters) - Gold rebounded from an
early dip to a six-month low on short covering on Friday, but is
still on track for its largest annual loss in 32 years, as the
Federal Reserve's plan to scale back its monetary stimulus and
expectations of narrower U.S. government deficits have weighed
on bullion.
    The Fed said this week that the U.S. economy was strong
enough to scale back its massive bond-buying stimulus, winding
down an era of easy money that saw gold rally to an all-time
high of $1,920.30 an ounce in 2011. 
    The metal, a traditional inflation hedge and safe haven,
also came under heavy selling pressure after the U.S. Congress
reached a two-year budget deal earlier in the week, which is set
to ease automatic spending cuts and reduce the risk of a
government shutdown. 
    "There is a real fundamental logic behind the selloff in
gold, and it comes down to a real change in the way governments
look at financing their activities as they are becoming more
responsible," said Rob Lutts, chief investment officer of Cabot
Money Management which has $550 million in client assets.
    "People are now saying there is no need for gold as a
protection as much," Lutts said.
    Spot gold hit its lowest since June on Friday at
$1,185.10 an ounce, closing in on a 3-1/2-year low reached on
June 28. 
    The market clawed back some ground later in the session, up
1 percent at $1,202 by 2:53 p.m. EST (1923 GMT) on a combination
of short covering and physical buying, traders said.
    Option traders said there was limited buying of puts and
other strategies to protect downside risk, while all eyes are on
a possible sharp pullback if prices break below the June low of
    U.S. Comex gold futures for February delivery settled
up $10.10 an ounce at $1,203.70, with trading volume about 30
percent below its 30-day average, preliminary Reuters data
    Prices are down around 3 percent this week, and some 28
percent year-to-date, set to end a 12-year consecutive run of
    Gold lost 2.3 percent on Thursday, making it the financial
asset hardest hit by the Fed's decision to cut its stimulus.
    Bullman Asset Management manager Nick Bullman said that gold
could fall further as the Fed has only just started to taper,
and investors have become very negative towards the metal
because there is no sign of inflation. 
    "We are in an environment where we are going to need a much
bigger problem in the world than we foresee for gold to
recapture any of its lustre," Baring Asset Management investment
manager Andrew Cole said.
    As a gauge of investor sentiment, holdings in the SPDR Gold
Trust, the world's largest gold-backed exchange-traded
fund, fell 3.90 tonnes to 808.72 tonnes on Thursday, the lowest
in nearly five years. Outflows from the top eight gold ETFs have
totalled about 720 tonnes as investors channel more money to
    Among other precious metals, silver gained 0.8
percent to $19.39 an ounce. Platinum was up 1.1 percent
to $1,329.75 an ounce, while palladium rose 0.2 percent
to $695 an ounce.
 2:53 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold FEB   1203.70  10.10   0.8  1188.00 1206.90  122,249
 US Silver MAR  19.453  0.267   1.4   19.130  19.520   32,795
 US Plat JAN   1332.20  13.80   1.0  1314.50 1335.30   13,159
 US Pall MAR    698.75   2.45   0.4   696.00  701.80    3,205
 Gold          1202.00  12.40   1.0  1185.10 1206.99         
 Silver         19.390  0.150   0.8   19.170  19.520
 Platinum      1329.75  14.75   1.1  1320.25 1334.75
 Palladium      695.00   1.25   0.2   698.25  699.25
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        131,975   173,438   187,860     20.91   -0.37
 US Silver       35,443    55,499    57,543     29.45   -1.76
 US Platinum     21,960    11,834    12,601     18.92    1.14
 US Palladium     3,342     6,514     5,924     20.58    0.52
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