Gold falls 1 percent on Fed tapering speculation

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold fell about 1 percent on Tuesday, on track for its biggest one-day drop in 2014, hit by widespread speculation that the U.S. Federal Reserve might announce a further cut in its bond-buying program at a meeting next week.

Traders said signs of a better U.S. economy and expected Fed stimulus trimming will weigh on gold's investment appeal as a hedge against inflation.

"I am confident that the Fed is going to continue its tapering approach. There's been sustained improvement in the global economic recovery, and that should continue to dampen safe-haven asset demand," said Phillip Streible, senior commodities broker at brokerage RJ O'Brien.

A report in the Wall Street Journal on Monday said the Fed is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the Fed's expectations for solid U.S. economic growth this year. The U.S. central bank's next meeting is scheduled on January 28-29.

Spot gold was down 1 percent at $1,240.99 by 12:51 p.m. EST (1751 GMT), having earlier fell as much as 1.4 percent to a one-week low of $1,235.68 an ounce.

A lack of major U.S. economic indicators on Tuesday prompted some gold investors to take profits after the metal posted its fourth consecutive weekly gain last week.

U.S. gold futures for February delivery were down $11 at $1,240.90 an ounce.

Trading volume was on track to finish in line with its 250-day average, preliminary Reuters data showed. U.S. gold traders returned to their desks after the market was shut on Monday for the Martin Luther King Jr. Day holiday.

CHINA DEMAND FADES

Gold purchases in China, the world's biggest buyer of the metal, have slowed from last week's levels as gold prices have gained for four straight weeks.

Analysts say Chinese gold imports, the lone bright spot in an otherwise disastrous year for bullion in 2013, look set to fall from last year's record levels.

Traders continue to closely monitor gold investment interest after data showed that holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, posted the first increase in a month.

Among other precious metals, silver was down 2 percent at $19.85 an ounce. Among platinum group metals, platinum fell 1.1 percent to $1,445.25 an ounce, while palladium edged up 0.2 percent at $746.75 an ounce.

Analysts said platinum group metal prices were underpinned after the chief executives of the world's top three platinum producers said wage hikes being sought by the AMCU union, which plans a strike against their South African operations this week, were "unaffordable and unrealistic.

(editing by David Evans, Jane Baird and Meredith Mazzilli)