February 29, 2012 / 5:35 PM / in 8 years

PRECIOUS-Gold down 5 pct, biggest one-day drop in 3 years

(Rewrites, adds details throughout story)	
    * Funds exit gold trade Bernanke's job remarks dash QE3
    * Gold posts biggest 1-day loss in 5 months, ends Feb in red
    * Gold touched high above $1,790 early after ECB cash move
    * Coming up: U.S. personal income Thursday

    By Frank Tang	
    NEW YORK, Feb 29 (Reuters) - Gold fell 5 percent to
below $1,690 an ounce on Wednesday for its biggest one-day drop
in more than three years, as speculation that central banks
might be done with easy monetary policies led funds to exit the
bullion trade.	
    Gold fell nearly $100 and silver was down $3 from session
highs. Losses started to snowball at 10 a.m. EST (1500 GMT)
after U.S. Federal Reserve Chairman Ben Bernanke did not mention
another round of monetary easing was imminent.	
    Trading volume exploded when speculation about an unusually
large sell-order ran rampant. Option traders said funds were
heavy buyers of puts to protect against further losses.	
    Gold's losses dwarfed those in the euro and other
commodities as bullion fell through key support after it failed
to sustain gains around $1,790 an ounce, above Monday's high.	
    Market talk about erroneous trades in the U.S. Treasury bond
futures market also hit sentiment. 	
    Most analysts viewed the sudden decline as an aberration
rather than the start of a long-term decline. 	
    "There is no hint from Bernanke's speech that there will be
a QE3 type program which people have been hoping for," said
Jeffrey Sherman, commodities portfolio manager of DoubleLine
Capital, a Los Angeles-based investment manager with $28 billion
in assets.	
    "It's just a pullback, it doesn't feel like it would be the
start of a bear market," Sherman said.	
    Spot gold was down 5 percent for the day at $1,695.39
an ounce by 4:10 p.m., after hitting a one-month low at
    Wednesday's sell-off wiped out gold's gains from earlier in
February, and the metal ended the month with a 2.5 percent loss
for its second decline in three months.	
    Earlier in the session, bullion touched a 3-1/2 month high
at $1,790.30 after the European Central Bank completed offering
cheap loans worth over half a trillion euros to banks.
    The ECB move reinforced some notions among gold investors
that central banks might be finished with their monetary easing.	
    Spot gold fell below its 150-day moving average for the
first time in a month. 	
    Analysts said the next important resistance level is $1,650
an ounce, where the metal found support during its last sell-off
in late January.	
    Funds were heavy buyers of December $1,500 put options as
some looked to profit and others tried to protect further
downside risks in futures, said Jonathan Jossen, a COMEX gold
options floor trader.	
    In his semi-annual testimony to the U.S. Congress, Bernanke
said that while the decline in the U.S. unemployment rate has
been more rapid than expected, it would not continue dropping
unless economic growth accelerated. 	
    Bernanke's remarks hit gold particularly hard because heavy
bullish bets had been placed leading up to the ECB's offering of
low-interest loans as it bought more time to sort out the debt
crisis, analysts said. 	
    U.S. gold futures for April delivery settled down 
$77.10 at $1,711.30 an ounce. 	
    Trading started out quietly but exploded after 10 a.m. EST,
with 30,000 lots of the April contract trading in a five-minute
span between 10:50 a.m. and 10:55 a.m. 	
    Turnover was around 340,000 lots, about 70 percent above the
market's 30-day average and on track to be one of the busiest
days since September 2011, preliminary Reuters data showed.     	
    Spot silver was down 6.4 percent at $35.54 an ounce,
reversing a 4 percent gain posted on Tuesday.  	
    Among platinum group metals, platinum was down 2.2
percent at $1,676.50 an ounce and palladium fell 3.1
percent to $697.28.	
 4:10 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold APR   1711.30 -77.10  -4.3  1688.40 1792.30  318,026
 US Silver MAY  34.642 -2.563  -6.9   33.825  37.580  109,117
 US Plat APR   1692.60 -30.90  -1.8  1677.00 1739.00   14,174
 US Pall JUN    708.40 -13.80  -1.9   701.40  727.80    4,925
 Gold          1695.39 -88.60  -5.0  1689.35 1790.30         
 Silver         34.540 -2.370  -6.4   34.230  37.460
 Platinum      1676.50 -37.74  -2.2  1679.25 1732.50
 Palladium      697.28 -21.94  -3.1   702.73  722.22
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        338,315   190,545   195,452      19.8   -0.04
 US Silver      120,681    58,927    74,065     34.37    2.02
 US Platinum     14,952     7,774     7,995     23.94    0.11
 US Palladium     5,226     5,304     4,678                  
 (Additional reporting by Jan Harvey in London; Editing by Lisa
Shumaker, Bob Burgdorfer and Jim Marshall)
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