ET:Gold reverses losses in choppy Asian trading; Fed stimulus in focus
SINGAPORE: Gold reversed early losses on Monday as buyers emerged following a sell-off triggered by renewed fears that the U.S. Federal Reserve will begin tapering its bullion-friendly stimulus measures before the end of the year.
Gold fell nearly 1 percent earlier in the session, adding to a 3-percent fall on Friday. Silver also recovered sharply from early trade after strong numbers in a preliminary survey of China's factory sector boosted the metal, which has industrial uses, helping gold.
"A lot of stops are being targeted right now," said one precious metals trader in Sydney. "Trading today has been as volatile and choppy as it could be in the Asian time zone."
Another trader in Hong Kong said stops were triggered after gold prices slowly recovered to Friday's closing price from a drop in early trade.
Spot gold had risen 0.05 percent to $1,325.71 an ounce at 0703 GMT, after falling to as low as $1,313.65. Spot gold lost nearly 3 percent on Friday.
U.S. gold futures fell as much as 1.4 percent, while silver futures dropped 2.9 percent before paring some losses.
After a surprise decision by the Fed last week to stick to its bond-buying stimulus, St. Louis Fed President James Bullard said on Friday that the U.S. central bank could still scale back the stimulus at an October meeting should data point to a stronger economy.
Gold, often seen as an inflation-hedge and a safe-haven investment, is highly sensitive to the fate of the stimulus which propelled it to record highs in 2011.
A Reuters poll of economists showed that many expected the Fed to taper bond purchases only in December. Forty-two of 61 economists said the Fed would now taper in December, the last chance for policymakers to follow through on Fed Chairman Ben Bernanke's earlier guidance.
"The Fed will not reduce immediately considering they downgraded their views about the economy in the (September)meeting," said Chen Min, precious metals analyst at Jinrui Futures in Shenzhen. "The next possible window is in December."
Hedge funds and money managers slashed bullish bets in futures and options of U.S. gold and silver markets, while holdings in SPDR Gold Trust fell nearly 2 tonnes.
Weak buying from major consumer China, which was back from the mid-autumn festival holiday, weighed on prices earlier in the day.
"We can see some buying interest from them only if prices fall below $1,300 and stay above $1,250," said one dealer.
