PRECIOUS-Gold at 3-1/2 week low on stronger dollar, Fed taper talk

Clara Denina
Tuesday, 12 Nov 2013 | 6:36 AM ET

* Gold down for 4th day, hits fresh 3-1/2 week low

* Dollar strengthens on Fed tapering expectations

* Physical demand in Asia remains subdued - dealers

(Updates throughout, changes dateline from SINGAPORE)

LONDON, Nov 12 (Reuters) - Gold hit a 3-1/2 week low on Tuesday, falling for a fourth straight session as the dollar rose and expectations increased that the U.S. Federal Reserve will soon scale back monetary stimulus.

The metal has lost nearly 3 percent over the past four sessions, as data on strong U.S. economic and jobs growth boosted speculation that the Fed will taper its $85 billion-a-month bond-buying programme by the end of the year.

"Gold's inverse relation versus the dollar seems to be at its strongest when there is no other macro or fundamental driver for the market," Macquarie analyst Matthew Turner said.

This is likely to persist until the Fed signals its next stimulus move, Turner added.

Spot gold hit its lowest since Oct. 17 at $1,276.24 an ounce in earlier trade. It was down 0.1 percent at $1,281.00 by 1119 GMT. Technical support was pegged in the $1,277-$1,269 area, analysts said.

Comex gold futures for December were down $0.70 to $1,280.40 an ounce.

The dollar rose 0.3 percent against a basket of currencies, edging back towards a two-month peak struck on Friday.

The 10-year U.S. yield rose towards a near two-month high at 2.78 percent.

As gold pays no interest, the rise in returns from U.S. bonds and other markets is seen as negative for the metal.

Gold has fallen nearly a quarter this year on expectations that the Fed would cut back on its bond purchases this year, so any delay could provide a boost to prices.

However, gains could be kept in check by weakness in technical charts and physical demand.

Gold's drop below $1,300 on Friday has failed to attract buyers in Asia as customers expect prices to weaken further. Dealers say buyers would come in as prices fall towards $1,200.

Physical demand on its own typically does not drive prices.

"Price action is likely to remain heavy, with little sign yet of a boost in physical demand," ANZ analysts said in a note.

BNP Paribas on Monday raised its year-end gold price outlook to $1,415 an ounce but lowered its 2014 forecast to $1,095.

Spot silver fell 0.8 percent to $21.16 an ounce, having fallen to a three-and-a-half-week low of $21.02 in earlier trade.

Spot platinum was unchanged at $1,428.78 an ounce. Spot palladium fell 0.7 percent to $746.31 an ounce.

Refiner Johnson Matthey said on Tuesday that strong investment and industrial demand will push the platinum market in 2013 into its biggest deficit for 14 years.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans)