* Spot gold slides after brief break over $1,400/oz
* Sustained job gains could reduce Fed bond buying -Bernanke
* U.S. dollar rallies vs basket of currencies after remarks
(Rewrites throughout, updates prices, changes byline, dateline
(prev London)
By Carole Vaporean
NEW YORK, May 22 (Reuters) - Gold turned sharply lower on
Wednesday, as investors weighed U.S. Federal Reserve Chairman
Ben Bernanke's congressional testimony warning of risks to
holding interest rates too low for too long and opened the
possibility of reducing bond purchases.
In prepared remarks, as expected, the Fed chief said
monetary stimulus was helping the U.S. economy recover, but it
was too soon to remove existing measures.
Then, during the question and answer period, investors began
to sell gold as Bernanke raised the possibility of gradually
reducing the Fed's bond purchases if the labor market improved
in a sustainable way.
"The big debate with the Fed has been, are they or aren't
they going to begin reducing their liquidity subsidies this year
or is it going to continue to go on?," said Michael Cuggino and
president and portfolio manager at Permanent Portfolio Funds in
San Francisco.
"Regardless of what your position is, you heard something
today that you could rely on to support your own view. I think
they are saying things could go either way," he added.
The dollar rallied after Bernanke's remarks, pressuring gold
into negative territory. The euro slipped, retreating from a
one-week high set before Bernanke's speech.
Spot gold had briefly broken above $1,400 to a
one-week high of $1,414.25 an ounce after Bernanke said the Fed
needed to see further signs the economy was gaining traction
before removing current measures.
But the precious metal erased all those gains and slid once
he opened the possibility that the Fed could reduce bond
purchases as early as later this year.
Spot gold was down 1.12 percent at $1,360.08 per ounce by
3:05 EDT (1905 GMT) and had fallen as low as $1,354.61.
U.S. gold futures for June delivery finished at
$1,367.4, off the previous close at $1,378.20 an ounce. In after
hours trade, it fell further to $1,358.70, down 1.37 percent.
In a sign of divisions on the policy-setting Federal Open
Market Committee, minutes of the latest meeting released
Wednesday highlighted the debate over how soon the Fed should
start to scale back its bond-buying stimulus.
"On one hand, Bernanke's leading you to believe that they
might taper off bond buying in the next few meetings. On the
other hand, other Fed members have commented on the dual mandate
that would lead you to believe stimulus is going to be around
for quite awhile," said Cuggino, referring to the Fed's
balancing act of managing both inflation and economic growth.
Bernanke's testimony also emphasized that inflation
continued to run below the bank's target.
Gold is usually seen as a hedge against inflationary
pressures, which remain low in major markets at the moment,
despite accommodative measures.
"The Fed has been buying bonds since the beginning of the
year and gold hasn't done much, and if you look across the
world, we are indeed seeing monetary easing, but inflation
expectations are dropping," Credit Suisse commodity analyst
Karim Cherif said.
PHYSICAL DEMAND
Physical demand remained strong in China, but buying in
India, the world's top gold consumer, has been slowing as its
central bank tries to rein in a trade deficit by cutting gold
and silver imports.
As a gauge of investor interest, holdings of New York's SPDR
Gold Trust, the largest gold-backed exchange-traded-fund,
fell 0.8 percent on Tuesday to 1,023.08 tonnes, the lowest in
more than four years.
Spot silver eased 0.63 percent to $22.24 an ounce,
after falling to a 2-1/2-year low earlier in the week at $20.84.
Platinum trimmed gains to 0.12 percent at $1,458.74
an ounce as supply concerns in South Africa continued. Palladium
was up 0.10 percent to $744.22 an ounce. [ID:nWLB0034N
Prices at 3:26 p.m. EDT (1926 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold 1367.40 -10.20 -0.7% -12.7%
US silver 22.472 0.017 0.0% -19.5%
US platinum 1469.20 10.80 0.7% 5.0%
US palladium 752.15 4.05 0.5% 14.6%
Gold 1358.99 -16.45 -1.2% -13.1%
Silver 22.21 -0.17 -0.8% -19.8%
Platinum 1458.49 1.49 0.1% 4.7%
Palladium 743.47 -0.03 0.0% 13.9%
Gold Fix 1408.50 23.25 1.7% -10.5%
Silver Fix 22.62 18.00 0.8% -19.7%
Platinum Fix 1474.00 9.00 0.6% 6.7%
Palladium Fix 750.00 2.00 0.3% 17.9%
(Additional reporting Clara Denina in Londoon and A.
Ananthalakshmi in Singapore; editing by Keiron Henderson and
Jane Baird)
