* Dollar firms as markets await Fed on monetary easing
* China should boost gold reserves, researcher says
* Coming up: U.S. GDP data on Friday
(Recasts, updates with comments and market activity, adds
second byline/dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 27 (Reuters) - Gold fell more than 1
percent on Wednesday as the dollar rose on heightened investor
concern that the Federal Reserve could buy much less government
debt than first thought to stimulate economic growth.
Silver and platinum group metals dropped with other
commodities, as the dollar index turned higher for the year to
date on worries the greenback had sunk too far based on overly
optimistic expectations on the extent of any Fed easing.
"The expectation of a more gradualist approach on
quantitative easing by the Fed has led to this pullback," said
James Steel, chief commodity analyst at HSBC.
Technical selling triggered further price weakness after
the metal broke below its Monday lows around $1,325 an ounce,
but bullion found support at $1,319 from a rising trendline
dating to late July, analysts said.
Expectations of large-scale U.S. Treasury bond purchases by
the Fed have fueled market gains as investors bet more
quantitative easing (QE2) would boost economic recovery and
lift asset prices.
But the Wall Street Journal said the Fed would likely next
week unveil a program of purchases worth a few hundred billion
dollars over several months. Investors' base-case scenario was
for an initial commitment to buy at least $500 billion.
[]
Spot gold <XAU=> hit a low of $1,318.74 and traded down 1.4
percent at $1,320.35 an ounce at 1:24 p.m. EDT (1724 GMT). U.S.
gold futures for December delivery <GCZ0> fell $17.70 an ounce
to $1,320.90.
All eyes will turn to U.S. growth data at the end of this
week, and the hotly awaited policy meeting of the Federal Open
Market Committee the following week, at which the prospect of
monetary easing is set to be discussed.
"The greenback is holding strong, and there is little other
news (for gold)," said Andrey Kryuchenkov, analyst at VTB
Capital. U.S. GDP data on Friday will be key for the dollar,
and consequently for gold, he said, "but it is really down to
the FOMC".
The dollar hit a one-week high against the euro and a
two-week peak against the yen due to uncertainty about the U.S.
central bank's plans. It extended gains after data showed U.S.
new home sales rose more than expected in September.
[]
Gold set a record $1,387.10 an ounce earlier in October as
expectations that the Fed would pursue a second round of
quantitative easing pressured the dollar, but prices have
slipped as investors worry the impact of this has been too
heavily priced into currencies and gold.
"I think the Fed won't go as big on QE2 as people have been
expecting, and I think the dollar (will) firm into year-end,"
said Simon Weeks, head of precious metals at the Bank of Nova
Scotia. "It's just a question of time before we are lower."
BARGAINS HUNTED
In India, bullion traders snapped up bargains to meet
festival demand as Dhanteras, one of the biggest gold-buying
occasions of the year, approached in November. []
India's October gold imports are forecast to rise by 14.6
percent from a year ago despite record-high prices, as Hindu
festivals and the metal's investment performance attract buying
interest. []
Earlier, bullion received a boost after a newspaper run by
China's Ministry of Commerce said the country should
significantly boost state gold reserves to a level equal to
that held by the United States, citing a local researcher.
[]
"While the implications of potential QE and its size have
monopolized market attention, the China report reminds us that
the current mood amongst central banks, particularly in Asia,
is to increase exposures to gold," UBS said in a note.
Palladium <XPD=> dropped 1.1 percent to $614.05 an ounce,
having touched its highest since 2001 at $636.25 an ounce. The
autocatalyst metal is one of this year's best-performing
commodities. (Graphic: http://r.reuters.com/baf29p )
Silver <XAG=> traded down 1.7 percent at $23.42 an ounce,
and platinum <XPT=> dropped 1.2 percent to $1,675.17 an ounce.
Analysts cited weakness related to concerns among U.S.
regulators about market manipulation. The U.S. Commodity
Futures Trading Commission said there had been attempts to
influence silver prices, but gave no detail on the status of a
probe into price manipulation in silver that started in 2008.
[]
Prices at 1:37 p.m. EDT (1737 GMT)
LAST NET PCT YTD
CHG CHG CHG
US gold <GCZ0> 1323.40 -15.20 -1.1% 20.7%
US silver <SIZ0> 23.465 -0.365 -1.5% 39.3%
US platinum <PLF1> 1679.30 -24.70 -1.5% 14.2%
US palladium <PAZ0> 616.10 -9.35 -1.5% 50.7%
Gold <XAU=> 1323.01 -15.69 -1.2% 20.7%
Silver <XAG=> 23.44 -0.38 -1.6% 39.2%
Platinum <XPT=> 1675.42 -19.53 -1.2% 14.3%
Palladium <XPD=> 613.50 -7.13 -1.1% 51.3%
Gold Fix <XAUFIX=> 1324.50 -7.75 -0.6% 20.0%
Silver Fix <XAGFIX=> 23.77 29.00 1.2% 39.9%
Platinum Fix <XPTFIX=> 1695.00 3.00 0.2% 15.6%
Palladium Fix <XPDFIX=> 622.00 2.00 0.3% 54.7%
(Reporting by Frank Tang; Editing by Dale Hudson)
