June 22, 2012 / 11:54 AM / 8 years ago

PRECIOUS-Gold posts 3.5 pct weekly drop on deflation fear

* Gold bounces up slightly a day after 2.5 percent slide
    * Gold posts sharp weekly loss, close to flat for year
    * Moody's downgrade on banks provides some safe-haven bids
    * Coming up: World central bankers meet at Brussels over
weekend

 (Recasts, adds details, updates market activity)
    By Frank Tang
    NEW YORK, June 22 (Reuters) - Gold rebounded on Friday after
the last session's sell-off, but the precious metal was
virtually flat for the year to date and posted a weekly drop of
nearly 4 percent on deflation worries and a lack of aggressive
Federal Reserve stimulus.
    In early trade, gold briefly crossed into negative territory
for 2012, extending Thursday's 2.5 percent drop. Investors were
frustrated by the Fed's decision this week to lengthen
its "Operation Twist" program aimed at lowering long-term
interest rates instead of a new outright bond purchase program.
    Inflation fears have helped fuel several years of strong
gains for gold, but investors are starting to worry about
deflation after reports this week showed signs of slowing
economic activity around the world. 
    "There is zero inflation out there. With gold being well
received as a risk asset, the price is deflated because of the
rising dollar," said Phillip Streible, senior commodities broker
at futures brokerage R.J. O'Brien.
     Streible said investors may rebuild gold positions after
the latest price pullback, and might rethink the flow of funds
into U.S. Treasuries because they have reached a "saturation
point."
    Spot gold was up 0.2 percent at $1,568.70 an ounce by
2:59 PM EDT (1859 GMT), just $5 above the closing price of
$1,563.80 for 2011. 
    The metal noted a 3.5 percent this week for its
second-largest weekly decline of the year. 
    U.S. gold futures for August delivery settled up
$1.40 at $1,566.90, with trading volume at about 35 percent
below its 30-day average, preliminary Reuters data showed.
    Silver was up 10 cents at $26.85 an ounce. The metal,
widely used in industry, posted a 6.5 percent drop for the week,
its biggest weekly decline for the year.
    Demand for physical gold in key Asian markets remained
lackluster. 
    Indian gold buying has been hurt by a bad monsoon season and
a record low in the rupee, which pushed local gold prices to an
all-time high. India's government's decision to double import
duty on gold to 4 percent also weighed heavily. 
    Gold imports to India, historically the world's largest
buyer, fell by $6.2 billion in the first two months of the
fiscal year that began in April, compared with a year before,
the country's finance secretary said on Friday. 
    
    GOOD BUY AFTER PULLBACK?
    Gold prices appeared underpinned a day after Moody's
downgraded 15 of the credit ratings of world's biggest banks to
reflect the risk of losses from volatile capital markets.
Worries about the euro-zone debt crisis also supported gold.
    LGT Capital Management analyst Bayram Dincer said investors
will retain interest in gold as long as the metal can hold
strong support near $1,530 an ounce.
    "We believe the slide in gold prices may create an
attractive entry point for emerging markets buyers and long-term
investors such as the official sector and pension funds, who may
be looking to diversify away from the U.S. dollars and into a
quality hard asset such as bullion," HSBC said in a note.
    Among platinum group metals, platinum was down 0.3
percent at $1,426.65 an ounce, while palladium edged up
0.2 percent at $604.35 an ounce.

 2:59 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1566.90   1.40   0.1  1558.60 1573.20  124,962
 US Silver JUL  26.661 -0.178  -0.7   26.510  26.995   50,276
 US Plat JUL   1431.20  -7.40  -0.5  1421.10 1441.60    9,687
 US Pall SEP    607.20  -1.35  -0.2   605.50  612.55    2,681
                                                              
 Gold          1568.70   3.28   0.2  1559.15 1571.99         
 Silver         26.850  0.010   0.0   26.610  27.040
 Platinum      1426.65  -3.85  -0.3  1425.25 1437.75
 Palladium      604.35   1.02   0.2   607.48  610.75
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        132,967   211,735   196,961     20.42   -1.07
 US Silver       76,996    51,118    53,428      32.7    2.97
 US Platinum     14,681     9,893     8,178        23    0.00
 US Palladium     2,686     5,600     4,490                  
                                                              
 
 (Additional reporting by Jan Harvey in London; Editing by David
Gregorio)
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