US MIDDAY: gold drops

Gold fell in choppy trade on Monday as a reduced target for Chinese economic growth pressured commodities and equities, and the metal's losses could accelerate if it fails to hold key support after last week's sell-off. Bullion fell 1 percent earlier after China cut its 2012 growth target to an eight-year low of 7.5 percent from 8 percent. The country, viewed by many as the world's economic engine, kept its inflation target unchanged at 4 percent.
Gold recovered somewhat on a slightly weaker dollar, but investors remained cautious toward the metal after last week's sudden, 3.5 percent drop. "The bears will score a major victory if they are able to send prices below the longer-term 200-day moving average. Until then, one can expect sideways action to ensue," said Adam Sarhan, CEO of Sarhan Capital.
Gold charts on a weekly basis remained weak after it broke below key trendline support from its bullish double-bottom pattern, Sarhan said. Spot gold was down 0.5 percent at $1,703.89 an ounce by 12:03 pm EST (1703 GMT). Gold has held its 200-DMA, currently at $1,675 an ounce, since mid-January. Should it slip below that level, analysts said the metal could test $1,650, an area of support from its previous tumble in January.
US gold futures for April delivery fell $4.70 an ounce to $1,705.10 in decent trading volume. Gold's 3.5 percent loss last week was its worst weekly performance since mid-December, after Federal Reserve Chairman Ben Bernanke gave no further hints of any imminent US quantitative easing.
It retreated below $1,700 an ounce earlier in the session. However, the metal appeared to receive strong backing from physical buyers who believe the low-interest-rate environment could eventually support much higher prices. "I don't think there has been huge psychological damage done that would push gold lower from here," Macquarie analyst Hayden Atkins said.
Atkins said gold retreated because it was high relative to the dollar, and added: "The trajectory for the dollar is lower in the balance of the year, and that should be supportive." Although extreme risk aversion helped lift gold last year at a time of dollar strength, the metal has since re-established its usual inverse relationship to the US currency.
Analysts say while gold is likely to consolidate in the short term, in the longer run it remains firmly underpinned by ultra-loose US monetary policy, portfolio diversification and strong physical demand from Asia. Silver lost 1.1 percent at $34.05 an ounce. It fell 2.5 percent last week. Platinum was down 2 percent at $1,659.99 an ounce, while palladium gained 0.5 percent at $703.72 an ounce.