August 5, 2013 / 9:49 AM / 4 years ago

PRECIOUS-Gold drops on strong U.S. and UK economic data

* U.S. services sector rebounds from 3-year low in July
    * British business booms in July, PMI shows
    * U.S. Treasury yield climbs on encouraging data
    * Coming up: U.S. international trade data Tuesday

 (Adds comment by Fed's Fisher, market details, updates market
activity)
    By Frank Tang and Clara Denina 
    NEW YORK/LONDON, Aug 5 (Reuters) - Gold dropped in quiet
trading on Monday after signs of an improving British business
sector and better U.S. manufacturing activities dampened
bullion's appeal as an investment hedge.
    The metal accelerated losses after data showed growth in the
U.S. services sector rebounded from a three-year low, while
British businesses boomed and activity at euro zone companies
expanded modestly in July for the first time in 18 months.
 
    Monday's data came on the heels of last week's strong U.S.
factory activities and a mixed U.S. nonfarm payrolls report that
sent gold to its biggest weekly losses in five weeks. 
    "In the absence of weaker-than-expected macro data, short
covering activity is likely to subside, leaving gold to search
for support from the physical market," said Suki Cooper,
precious metals strategist at Barclays Capital.
    Also weighing down on gold was disheartened investment
interest. Holdings in SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, fell on Friday to four-year
lows. 
    Spot gold was down 0.6 percent at $1,304.06 an ounce
by 2:46 p.m. EDT (1846 GMT).
    U.S. gold futures for December delivery settled down
$8.10 at $1,302.40 an ounce, with trading volume at less than
98,000 lots, about 55 percent below its 30-day average,
preliminary Reuters data showed.
    In recent weeks, the Fed has said it would begin tapering
its $85 billion monthly bond purchases if the U.S. economic
recovery retained momentum, prompting investors to monitor
housing and jobs data closely.
    Gold fell nearly 2 percent last week on uncertainty over the
time frame of the Fed's scaling back of its stimulus. 
    The U.S. central bank is nearer to dialing back its massive
bond-buying program after the unemployment rate dropped last
month, Dallas Fed President Richard Fisher said on Monday, the
second Fed official to make that point in as many trading days.
    "I am of the opinion that unless we see some disturbing data
... that we should start in September," Fisher told reporters
after a speech in Portland, Oregon, adding that he is not alone
at the Fed in that view. 
    
    US TREASURY YIELD UP
    Gold also fell as U.S. benchmark 10-year notes 
yield climbed as traders reduced their bond holdings on
surprisingly strong data on the U.S. services sector. 
    Analysts said the inverse link between gold and Treasury
bond yields has recently strengthened. The 25-day
correlation-log between spot gold was at a negative 0.5, the
tightest link since April.
    As gold pays no interest, the returns from U.S. bonds are
closely watched by market participants as a gauge of short-term
interest rate.
    Among other precious metals, silver fell 0.8 percent
to $19.74 an ounce. Platinum rose 0.3 percent to
$1,449.75 an ounce and palladium gained 0.2 percent to
$731.22 an ounce.
    
 2:46 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold DEC   1302.40  -8.10  -0.6  1296.70 1320.30   89,935
 US Silver SEP  19.719 -0.193  -1.0   19.520  19.990   28,368
 US Plat OCT   1448.10  -3.40  -0.2  1440.50 1458.20    7,413
 US Pall SEP    735.20   5.50   0.8   727.30  737.50    1,866
                                                               
 Gold          1304.06  -7.44  -0.6  1298.05 1319.30         
 Silver         19.740 -0.160  -0.8   19.590  20.000
 Platinum      1449.75   5.00   0.3  1443.50 1453.75
 Palladium      731.22   1.72   0.2   730.46  735.50
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold         97,662   218,053   187,132     25.11   -0.37
 US Silver       33,768    54,596    55,303     28.12   -2.55
 US Platinum      7,596    13,261    12,489     21.18   -2.19
 US Palladium     2,025     4,131     5,353                  
                                                               
 
 (Additional reporting by A. Ananthalakshmi in Singapore;
editing by Dale Hudson, Grant McCool and Matthew Lewis)

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