PRECIOUS-Gold backs off 2-week high; eyes US election, Fed

                                
 * Dollar rebound forces gold to end down, off 2-week high
                                
 * Market focus on Tuesday's US election, Wednesday's Fed
                                
 * Silver, palladium outperform gold
                                
 * Coming up: US elections; Fed meeting start on Tuesday
 (Recasts, updating prices to U.S. close; adds NEW YORK
dateline/byline)
                                
 By Barani Krishnan and Jan Harvey
                                
 NEW YORK/LONDON, Nov 1 (Reuters) - Gold prices eased on
Monday, retreating from two-week highs, as the market zeroed in
on the potential outcome of this week's U.S. elections and a
Federal Reserve decision on asset buying.
                                
 Both gold bullion and futures have jumped more than 15
percent since late August, hitting record highs of nearly
$1,390 an ounce, as the dollar plunged on expectations that the
Fed will spend billions of dollars on a second round of
quantitative easing to aid economic recovery.
                                
 In Monday's session, the market rallied again, touching
two-week highs. But it fell later as investors began to work on
what Tuesday's U.S. Congressional elections and Wednesday's
Federal Reserve policy announcement were likely to yield.
                                
 "I think, really, at this point in time, gold and almost
all other commodities are focused on the elections and the Fed
meeting. So, even if we talk about any other data or factors
outside these, it's going to come back to these two events,"
said David Meger, vice president and director of metals trading
at Chicago's Vision Financial Markets.
                                
 U.S. gold futures most-active contract, December <GCZ0>,
settled down $7, or 0.52 percent, at $1,350.60 an ounce on the
COMEX division of the New York Mercantile Exchange. It touched
$1,366.40, its peak since Oct. 19, during the session.
                                
 Spot gold <XAU=>, which reflects trades in bullion, was
almost flat, trading at $1,351.51 an ounce by 3 p.m. EDT (1900
GMT), versus $1,352.70 in New York late on Friday. Bullion hit
$1,365.49 earlier in the session, the highest level since Oct.
19.
                                
 Bill O'Neill, partner of LOGIC Advisors in Upper Saddle
River, New Jersey, said he thought gold would finish the week
little changed. "My guess is for a plus/minus of $5 an ounce
either way."
                                
 As of Monday, most economists expected the Fed to buy $80
billion to $100 billion in assets per month under the so-called
QE2, according to a Reuters poll. Estimates of total purchases
ranged from $250 billion to $2 trillion.
                                
 UNCERTAINTY OVER FED WEIGHS
                                
 The wide range showed how uncertain some investors were
over the extent of the Fed easing.
                                
 Those uncertainties were partly responsible for Monday's
thin volume in gold, which stood at about 122,00 lots on COMEX
at midday, versus Friday's 162,000 lots. Over a 30-day average,
volume in gold futures is down almost 28 percent.
                                
 A stronger dollar <.DXY> also weighed on gold prices.
[USD/]
                                
 Industrial data out of United States and China, indicating
economic recovery was on track, helped the dollar rebound. The
dollar has lost about 7 percent of its value over the past two
months on speculation over the QE2. [ID:nN01133257]
 [ID:nBJL002089]
                                
 Physical demand for gold, meanwhile, bucks any weakening
price trend in the immediate term.
                                
 India, the biggest bullion consumer, has kept up strong
buying of the yellow metal. The president of the Bombay Bullion
Association said India's October gold imports rose to 43
tonnes, above a Reuters poll forecast of 41.5 tonnes.
[ID:nBMA008757]
                                
 "The Diwali religious festival takes place in India on
Friday, and physical demand for gold should remain high in the
run-up to this holiday," Commerzbank said in a note.
                                
 SILVER, PALLADIUM OUTPERFORM
                                
 Silver and palladium outperformed gold in Monday's session,
extending their sharp run-up from last week.
                                
 Silver rose to its highest levels in 30 years, tracking
gains in gold to break through $25 an ounce for the first time
since 1980.
                                
 COMEX silver's December contract <SIZ0> settled down $1.20
at $24.552 an ounce, after racing to $25.055 earlier. Spot
silver <XAG=> peaked at $25.03 an ounce and was later bid at
$24.63 an ounce against $24.64.
                                
 But, unlike gold, physical demand for silver appeared to be
tapering.
                                
 Holdings of the world's largest silver-backed
exchange-traded fund, the iShares Silver Trust <SLV>, fell
nearly 40 tonnes on Friday to 10,141.92 tonnes, data from the
fund showed. [ID:nSGE6A0001]
                                
NYMEX December palladium <PAZ0> finished up more than half
percent, or $3.60, at $648.70 an ounce, extending nine-year
highs seen in the previous session. Spot palladium <XPD=> rose
to a peak of $655 an ounce, its highest since 2001.
                                
 (Editing by Walter Bagley)