PRECIOUS-Silver slides from highs, drags gold along

                                
 * Fed meeting an event risk
                                
 * Gold, silver volatility related to options activity
                                
 * Coming up: April U.S. consumer confidence at 1400 GMT
                                
 
                                
 (Updates with comment, refreshes prices)
                                
 By Amanda Cooper
                                
 LONDON, April 26 (Reuters) - Silver was set for its largest
one-day fall in six weeks on Tuesday after having hit fresh
31-year highs, while gold came under pressure from investor
uncertainty over the likely course of U.S. monetary policy.
                                
 Spot silver <XAG=> fell earlier by as much as 4.9 percent to
a session low of $44.63 an ounce, after having risen to $49.31
on Monday, its highest since touching $49.48 in January 1980.
 High volatility and the expiry of U.S. silver options added
to the intensity of the decline, impacting gold, which fell back
from Monday's record of $1,518.10 an ounce ahead of the outcome
of the U.S. Federal Reserve's policy meeting on Wednesday.
                                
 The Fed is expected to indicate it is in no hurry to raise
interest rates, while chairman Ben Bernanke will deliver the
first regularly scheduled post-decision news briefing in the
bank's 97-year history.
                                
 "There are quite a few things coming out in the next day or
two -- the FOMC and the GDP release. People are just taking
profits on these markets around that event risk," said Standard
Chartered analyst Daniel Smith. "The key thing for me is any
indication that interest rates might rise."
                                
 Silver was last bid at $45.77 an ounce at 1400 GMT, compared
with $46.90 late in New York on Monday, set for its biggest
daily loss since March 15.
                                
 Silver at-the-money implied options volatility <SIATMIV> has
risen by over 35 percent in the last four trading days alone to
hit its highest level since mid-November 2010.
                                
 "Silver is the most interesting," Standard Chartered's Smith
said. "Silver is going to be very volatile over the next couple
of weeks from a medium-term perspective, it will be a lot
softer."
                                
 Gold <XAU=> meanwhile was on course for a second daily
decline, in spite of the weakness in the dollar, which usually
acts as an incentive to non-U.S. investors to buy the metal.
                                
 The spot price was last down 1 percent at $1,494.00 an
ounce, while U.S. gold futures for June delivery <GCv1> were
down 0.9 percent at $1,494.50.
                                
 
                                
 DOLLAR LINK WEAKENS
                                
 However, gold's usual inverse relation to the dollar has
been weakening consistently since mid-April, meaning the bullion
price will derive less of a bounce from any softness in the U.S.
currency.
                                
 "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 restrict the amount of cash in the
financial system and could temper concern about inflation, which
investors often 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 its $600
billion bond-buying programme. [USD/]
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Silver technical outlook                [ID:nL3E7FP0WW]  
                                
TIMELINE-A brief history of silver      [ID:nL3E7CJ0DO]  
                                
Gold,silver ETFs holdings: http://link.reuters.com/sen29r  
                                
ANALYST VIEW-Silver charges ahead       [ID:nL3E7FI1AA]  
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 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. [USD/]
                                
 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."
                                
 Silver prices are still up about 50 percent so far this year
after gains of more than 80 percent last year.
                                
 Platinum <XPT=> was last down 1.2 percent at $1,797.24 an
ounce from $1,819.30, while palladium <XPD=> was down 1.5
percent at $747.50 an ounce.
                                
 (Additional reporting by Pratima Desai; editing by Alison
Birrane)