PRECIOUS-Gold tumbles as Bernanke sees Fed tapering later this year
* Bullion briefly trades above $1,300, first time in 3 weeks John Paulson bullish on gold on inflation play
* Trading volume highest so far in July
* Coming up: U.S. jobless claims, Philly manufacturing Thurs
(Adds comment, market details, updates prices) NEW YORK/LONDON, July 17 (Reuters) - Gold fell more than 1 percent on Tuesday after Federal Reserve chief Ben Bernanke said the U.S. central bank still expects to start scaling back its massive bond purchase program later this year. Bullion briefly rose above the $1,300 mark after Bernanke said in testimony before a congressional committee that he left open the option of changing stimulus exit plans if the economic outlook grew worse. However, the rally quickly faded after Bernanke reiterated that the Fed would likely reduce its program of buying $85 billion of bonds a month, known as quantitative easing, later in 2013 and halt it altogether by mid-2014. "The market has woken up to the fact that we are seeing the end of tapering and the potential end of QE, and that takes the blush off the rose," said Frank McGhee, head of precious metals trader at Integrated Brokerage Services LLC. Spot gold fell 1.3 percent to $1,275.84 an ounce by 3:24 p.m. EDT (1924 GMT), sharply below a session high at $1,300.16 an ounce. It marked the first time gold rose above $1,300 in three weeks. U.S. gold futures for August delivery settled down $12.90 to $1,277.50 an ounce, with volume at around 255,000 lots, the highest so far in July, preliminary Reuters data showed. Hedge fund manager John Paulson said gold is a potential hedge against inflation, which will rise over time. Paulson is the largest shareholder of the world's No. 1 gold-backed exchange-traded fund SPDR Gold Trust. Speaking at the CNBC Institutional Investor Delivering Alpha Conference, Paulson, whose gold fund has lost more than half of its value so far this year, said that "the rationale for owning gold is valid." because inflation will rise over time. In response to Paulson, Sean McGillivray, head of asset allocation at Great Pacific Wealth Management, said the gold market is often "irrational" and can move in the opposite direction to market fundamentals.
TAPERING UNCERTAINTY Gold has fallen nearly 25 percent this year, hurt by fears the Fed is set to curb its bond buying. The Fed's purchases have driven gold to record highs by pressuring long-term interest rates while stoking fears about inflation. Fed policymakers earlier this year indicated that the U.S. central bank could rein in its stimulus program, but Bernanke's comment last week about the need to keep an accommodative monetary policy triggered a gold rally. Gold would only rally further if the Fed's bond purchases were to continue longer than expected or increase, but neither of the scenarios is likely after Bernanke's comments, McGhee said. However, if U.S. Treasuries yields rise and data about the U.S. housing market proves disappointing, the Fed is less likely to taper its stimulus efforts, said Axel Merk, chief investment officer at Merk Funds, with about $500 million in mutual fund assets. Among other precious metals, silver fell 3.4 percent to $19.31 an ounce. Platinum was down 1.4 percent to $1,403.74 an ounce, while palladium eased 0.3 percent to $731.22 an ounce.
3:24 PM EDT LAST/ NET PCT LOW HIGH CURRENT SETTLE CHNG CHNG VOL US Gold AUG 1277.50 -12.90 -1.0 1269.30 1299.70 209,112 US Silver SEP 19.420 -0.515 -2.6 19.230 20.180 55,245 US Plat OCT 1411.00 -14.10 -1.0 1402.80 1434.60 8,423 US Pall SEP 735.45 -0.15 0.0 729.85 739.25 3,638 Gold 1275.84 -16.15 -1.3 1271.18 1300.16 Silver 19.310 -0.670 -3.4 19.290 20.130 Platinum 1403.74 -19.76 -1.4 1404.50 1430.50 Palladium 731.22 -2.28 -0.3 733.00 736.50 TOTAL MARKET VOLUME 30-D ATM VOLATILITY CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 252,028 193,250 179,327 23.4 0.66 US Silver 58,390 65,594 56,395 29.96 -0.64 US Platinum 8,865 15,874 13,075 26.47 -0.53 US Palladium 3,690 4,335 5,470
(Additional reporting by Clara Denina in London; editing by James Jukwey, Nick Zieminski and Kenneth Barry)