* Downside put option open interest doubles in a week * Options overall bullish but bearish bets rise By Amanda Cooper LONDON, Aug 24 (Reuters) - A surge in bearish gold options positions this week shows that numbers of investors are braced for a blow to expectations the Federal Reserve will act to foster growth - prospects that have set gold on course for its biggest weekly rise since early June. Until the release of U.S. Fed minutes on Wednesday, the gold price had traded in its narrowest range in August in 2-1/2 years, strait-jacketed by uncertainty among investors over what the U.S. central bank would do to aid a patchy economic recovery. The minutes showed the Fed would take measures "fairly soon" to grease the wheels of the economy, eliciting a 2 percent rally in the price of gold in two days and rekindling hopes among some investors that the bank will announce a fresh round of bond-buying to pin down interest rates as early as September. Such a move would benefit gold by keeping long-term interest rates, and hence the opportunity cost of holding non-yield bearing gold, low, stoking fears of inflation and boosting liquidity. The options market still paints a bullish picture for gold overall, with total bets on a rise in the price outpacing those on a fall. But bearish positioning has jumped this week, highlighting how wary the market is of the potential for the central bank not to deliver enough stimulus to feed a more sustained gold rally. "The market as a whole is definitely bullish, but a lot of them have no real idea why.....it is a bit of a herd mentality at the moment, but as with many herds, it doesn't always do to stand in the way," David Govett, head of precious metals at Marex Spectron, said. Most open interest on options contracts near the current most-active December gold futures price of around $1,668 an ounce is clustered in put options, which give the holder the right, but no obligation, to sell gold at a set price, at $1,600.00. Total put open interest at this strike price is now equivalent to 758,000 ounces, after more than doubling in size in a week, overtaking calls at $1,700 to become the largest single strike among options expiring on Sept. 25. Open interest in calls between $1,590 and $1,700 an ounce, at 3.15 million ounces, is close to double that in puts for these strikes, which by Thursday's close was at 1.89 million ounces. Event risks come thick and fast in the next month. The European Central Bank meets twice to discuss policy, once on Sept. 6 and again on Sept. 19. The Fed holds a two-day meeting on Sept. 12-13, and the expectation now is for the bank to give more detail on what steps it will take to bolster the economy. "As much as the minutes have helped the price, we have to take them with a pinch of salt. Economic data has improved since the meeting and the Fed really are on data-watch, so the market could run into a bit of disappointment," Ole Hansen, senior manager at Saxo Bank, said. DOUBT OVER ECB Meanwhile, the ECB's indication in late July that it would do whatever it took to protect the euro has raised speculation that it could step in to buy bonds of those nations whose borrowing costs have been lifted by the spread of the debt crisis. This has pushed the euro to six-week highs against the dollar and given gold extra support from a weaker U.S. currency. But the central bank has since quashed such talk and has said support would materialise if a country appealed formally for emergency aid from one of its bailout funds. Gold futures are some 13 percent below their record of $1,923.70 an ounce struck in September last year and have stuck to a range of no more than about $100 for the past three months precisely because of such abrupt changes in central bank expectations. Options on shares of the SPDR Gold Trust, the world's largest exchange-traded fund backed by physical gold, that expire on Sept. 22 also show investors have cut back on bullish plays. Open interest in calls on SPDR shares priced at $166.0, which translates into a spot gold price of just above $1,700 and is the largest strike for this expiry, fell by 13 percent to the equivalent of 585,100 ounces between Wednesday and Thursday. This is still the largest strike by far for near-the-money options for this expiry and reflects the similarly bullish skew in derivatives on COMEX. "What we are seeing is a tremendous amount of open interest at that strike and above," Anthony Neglia, president of Tower Trading and a COMEX gold options floor trader in New York, said. "You do have to pick a spot where you are comfortable being long and ... if we trade down to $1,650 and it holds it's a monster buy." SPDR shares were quoted at $161.6 around 1115 GMT on Friday.

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