Gold surrendered gains to fall 3.5 percent on Wednesday as above-consensus US economic data lifted stock markets, prompting some investors to cash in this month's hefty gains ahead of a keenly awaited central bank gathering this week. Some economists have speculated that Federal Reserve Chairman Ben Bernanke could announce a third round of quantitative easing - or printing money - to stimulate the sluggish US economy at the meeting in Jackson Hole, Wyoming, which starts on Thursday.
Spot gold was down 3.4 percent at $1,767.80 an ounce at 1424 GMT, having earlier risen as high as $1,853.61. On Monday it dropped 3.6 percent, its biggest one-day loss since February 2010, as investors took bets on rising prices off the table after an early rise to a record $1,911.46.
"The correction really should be taking place now, because of all the (bets) on the table," said Ashok Shah, chief investment officer at London & Capital. "But the journey is not complete until Jackson Hole is done." Gold is still up 8.7 percent this month as a US debt downgrade, worries over the eurozone debt crisis and talk of a further round of US monetary easing fuelled investment.
Analysts say gold is likely to remain in a structural uptrend. While it could be vulnerable to a sharp correction after this month's sharp run higher, especially if no quantitative easing is announced at Jackson Hole, this is likely to present a key buying opportunity for investors. "All eyes are on tomorrow and what Bernanke says in the Jackson Hole speech in Wyoming," said Carl Firman, an analyst at VM Group.
US gold futures for August delivery fell $86.00 an ounce to $1,775.30. Investors also are watching for potential gold margin requirement hikes from the CME Group, after the Shanghai Gold Exchange raised margins on some of its gold forward contracts twice this month.
The CBOE gold volatility index is at its highest since April 2009. The Hong Kong Mercantile Exchange also raised the margin requirement on its gold futures contract on August 23 by nearly 26 percent. "The CME has already hiked margin requirements for gold futures (earlier this month), throwing off smaller market participants and triggering a small price pullback," said VTB Capital analyst Andrey Kryuchenkov in a note. Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by nearly 25 tonnes on Tuesday, their biggest one-day outflow since January 25.
Among other precious metals, silver was down 3.5 percent at $40.37 an ounce, spot platinum was down 1.5 percent at $1,829.50 an ounce, and spot palladium was down 1 percent at $749.72 an ounce. Palladium has been the big loser of the precious metals complex this month, easing 10 percent at a time when gold has soared, and even fellow industrial precious metals platinum and silver have eked out some gains.
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