* Gold down for 3rd day, near two-year low of $1,321.35
* Fed may cut bond buying if U.S. economy strong - Bernanke
* China PMI shrinks for first time in 7 months
(Adds quotes, updates prices)
By A. Ananthalakshmi
SINGAPORE, May 23 (Reuters) - Gold fell for a third straight
session on Thursday after U.S. Federal Reserve Chairman Ben
Bernanke hinted at reducing an $85 billion bond-buying
programme, which has increased the precious metal's appeal as a
hedge against inflation.
While Bernanke said the central bank needs to see further
progress in the U.S. economy before the Fed scales back monetary
stimulus, he also added that a decision to adjust it could come
in the "next few meetings" if the economy looked set to maintain
Down nearly 20 percent this year, gold could come under more
selling pressure as investors increasingly price in a stimulus
cut ahead of the Fed's next policy meeting on June 18-19.
Spot gold fell 0.06 percent to $1,367.66 an ounce by
0327 GMT. It hit a low of $1,356.24 earlier in the session, near
a two-year low of $1,321.35 plumbed in April.
"It does not matter if the tapering off (of the bond buying)
is in this quarter or next or delayed by six months," said
Dominic Schnider, an analyst at UBS Wealth Management.
"If you know it's tapering off anyhow in the next 12 months,
people do not want to be in there anymore."
Sustained outflows from exchange-traded funds also point to
more downside for gold prices.
Holdings in SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, fell 0.3 percent to 1,020.07
tonnes on Wednesday, the lowest in more than four years.
U.S. gold futures eased 0.06 percent to $1,366.60 an
ounce. Spot silver, platinum and palladium
tracked gold lower.
China's factory activity shrank for the first time in seven
months in May as new orders fell, a preliminary survey of
purchasing managers showed, adding to concerns that a recovery
in the world's second-largest economy and No. 2 gold consumer is
The contraction is an "alarming sign", said UBS' Schnider at
a time when physical gold demand in Asia has been normalising.
Premiums for gold bars hit a record high in Asia on
Wednesday as lower spot prices lured more buyers, mainly in
China, amid tight physical supplies.
Top gold buyer India, which had seen gold imports jump 138
percent in April, is facing a slowdown as the peak wedding
season comes to an end and its central bank imposes new rules to
reduce a deficit.
Precious metals prices 0327 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1367.66 -0.88 -0.06 -18.33
Spot Silver 22.16 -0.03 -0.14 -26.82
Spot Platinum 1462.99 -2.51 -0.17 -4.69
Spot Palladium 739.22 -4.78 -0.64 6.82
COMEX GOLD JUN3 1366.60 -0.80 -0.06 -18.45 19532
COMEX SILVER JUL3 22.12 -0.36 -1.59 -26.84 4951
COMEX gold and silver contracts show the most active months
(Editing by Manolo Serapio Jr. and Himani Sarkar)