* Fed meeting an event risk
* Gold, silver volatility related to options activity
(Recasts, adds comment/background, pvs Singapore)
By Pratima Desai
LONDON, April 26 (Reuters) - Silver and gold tumbled on
Tuesday as investors sold on uncertainty about the direction of
monetary policy in the United States, but a softer dollar helped
support prices and sentiment.
Spot silver <XAG=> ceded nearly 5 percent to $44.61 an ounce
after touching $49.31 an ounce late in New York on Monday,
within reach of $49.48 hit in January 1980
It was bid at $45.92 an ounce at 1021 GMT from $46.90 late
in New York on Monday and is heading for its biggest daily loss
since March 15.
Gold <XAU=> hit a record high of $1,518.10 a troy ounce on
Monday. It was last bid at $1,504.61 from $1,508.45 on Monday.
"The rally has been strong, it's not surprising to see
profit-taking ahead of the FOMC meeting," said Peter Fertig, a
consultant at Quantitative Commodity Research.
"Markets expect it will be a dovish statement from the U.S.
Fed, but there are worries about them ending (Quantitative
Easing) ahead of time."
Tighter U.S. policy would mean less cash floating around the
financial system looking for a home and fewer worries about
inflation, which investors protect against by buying gold.
The Federal Open Market Committee meeting starts later on
Tuesday and concludes on Wednesday. The U.S. central bank is
expected to confirm it will stick to plans to complete a $600
billion bond-buying programme. []
The post-meeting news conference by Fed Chairman Ben
Bernanke on Wednesday will be the first regularly scheduled
briefing by a Fed chief in the bank's 97-year history.
"The ... meeting is a possible event risk but we believe
post-meeting comments will confirm that U.S. short-term rates
will remain low for the time being which would be positive for
precious metals," Credit Suisse Private Banking said in a note.
SOLAR POWER
The dollar fell to a 16-month low against the euro <EUR=> on
expectations that U.S. monetary policy will remain accommodative
compared to the European Central Bank, which has already begun
to raise rates. []
A lower U.S. currency makes metals priced in dollars cheaper
for holders of other currencies, while gold often used by
investors as a hedge against inflation is often triggered by
high oil prices. []
"Oil is down, that's a negative factor," Fertig said.
Traders say part of the reason for the volatility in gold
and silver prices is activity related to options -- contracts
which give holders the right to buy or sell the underlying
security at a fixed price in the futures.
"There's been a rush to cover exposure to these contracts
ahead of expiry (maturity)," a trader said. "It's been more
pronounced in silver futures."
U.S. silver futures <SIcv1> slid more than 5 percent to
$44.61 an ounce. The contract rallied to $49.82 in the previous
session, a hair off their record high of $50.35.
Silver prices are up about 50 percent so far this year after
gains of more than 80 percent last year.
Some analysts say silver this year has rallied on
expectations of rising demand from industrial consumers,
particularly those in the solar panel industry as governments
search for alternatives to nuclear energy after Japan's
earthquake and tsunami.
"Although demand for silver is certainly increasing from
this quarter we do not believe it explains the entire rally in
silver prices," HSBC said in a note.
"Nonetheless the political climate may favour solar power
and announcements regarding government support or increased
research for solar panels may support silver. Much of the buying
in silver has been retail and momentum driven."
Autocatalyst metal platinum <XPT=> was $1,812.24 an ounce
from $1,819.30 and palladium <XPD=> was at $751.97 from $757.80.
(Editing by Alison Birrane)
