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Gold drops to three-week lows on stimulus fears

Singapore, August 7, 2013

Gold extended losses into a third session on Wednesday, falling to a three-week low after strong US trade data and comments by a Federal Reserve official stoked fears the central bank could start tapering its stimulus from next month.

Bullion has lost nearly a quarter of its value this year after 12 annual gains as markets anticipate a reduction in the Fed's $85 billion monthly bond purchases. The commodities-friendly stimulus had pushed prices to all-time highs in 2011.

With physical demand at subdued levels during the seasonally soft summer period, investors are closely monitoring economic data from the United States to gauge the timing of the stimulus tapering.

Traders are also watching technicals as gold prices have fallen below the key $1,300 level.

"Trading in the month of August is always a tough one as thin market conditions are easier to manipulate," said a trader in Singapore.

"We see interim support at $1,268-$1,270 but if we break through those levels, gold could head for the $1,245-$1,251 level easily."

Spot gold had dropped 0.3 per cent to $1,277.61 an ounce by 0320 GMT, after losing over 1.5 per cent on Tuesday. The metal hit a trough of $1,273.14 on Wednesday, its lowest since mid-July.

US gold declined $6 to $1,276.60.

The Fed will probably reduce its massive bond-buying stimulus programme later this year, and depending on economic data could do so as early as September, Chicago Fed President Charles Evans said on Tuesday.

Evans was the third Fed official in two days to suggest a September pullback was still on the table.

The US economy likely grew faster than initially reported in the second quarter, thanks to a sharp narrowing in the trade deficit to its lowest in more than 3-1/2 years in June as exports touched a record high and imports fell.
    
CHINA, INDIA SLOW
    
Shanghai gold futures fell nearly 2 per cent on Wednesday, adding to losses from the previous session.
    
Traders said there wasn't much buying interest from China, the second biggest gold consumer after India, but demand could return when prices fall below $1,250.
    
China's net gold imports from key supplier Hong Kong slipped about 4 per cent in June from a month ago, although purchases held above 100 tonnes.
    
Gold premiums in India eased on Tuesday due to a lack of buying support in the physical market, as traders survived on old stocks amid an absence of fresh imports. - Reuters




Tags: China | India | US | Gold | Fed | drop | low |

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