US MIDDAY: gold plunges

Gold fell nearly 1 percent early on Thursday as funds unwound bullish bets, a day after the US Federal Reserve took an unprecedented step to commit to near-zero interest rates as long as unemployment remains above 6.5 percent. Worries about the US "fiscal cliff" of automatic tax hikes and spending cuts also pressured precious metals, overshadowing bullion's safe-haven appeal. There were no signs of progress toward a budget agreement in Washington.
Silver dropped 3 percent, its biggest one-day decline in a month.
On Wednesday the Fed adopted numerical thresholds for its monetary policy. It said it would keep interest rates near zero until the US unemployment rate fell to 6.5 percent. Analysts said the Fed move triggered selling on fears that the US central bank might stop pumping money into the economy if the job market improved dramatically in the near term. "With the economy showing some signs of recovery, we may see a 6.5 percent unemployment rate sooner than previously anticipated, so longer-dated funds that are heavily invested in metals are looking to reduce their gold positions," said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien. Spot gold was down 0.8 percent at $1,697.10 an ounce by 12:30 pm EST (1730 GMT) after falling t o a one-week low of $1,688.94 earlier.
US COMEX gold futures for February delivery were down $19 at $1,698.90, with volume on track to finish in line with its 30-day average, preliminary Reuters data showed. The Fed's decision to explicitly link easing with unemployment raised some concerns that gold will benefit less from limited economic stimulus in the future. The unemployment rate fell to a nearly four-year low of 7.7 percent in November as companies kept up a slow but steady hiring pace. But most economists do not expect the rate to fall to 6.5 percent anytime soon.
Bullion gained on Wednesday after the Fed also replaced a more-modest expiring stimulus program with a fresh round of $45 billion Treasury debt monthly purchases, on top of the $40 billion per month in mortgage-backed bonds they started buying in September. Silver, which has outperformed gold year to date, was down 3 percent at $32.43 an ounce. Among platinum group metals, platinum was down 1.4 percent at $1,609.74 an ounce, while palladium eased 0.5 percent to $688.74 an ounce.