PRECIOUS-Gold dives to lowest since July on Fed, hedge fund talk

Thu Feb 21, 2013 3:09am IST

* 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
graphic link)
    By Frank Tang
    NEW YORK, Feb 20 (Reuters) - 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.
    (Graphic: link.reuters.com/jej26t)
    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)
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