By Frank Tang

NEW YORK, Feb 20 (Reuters) - Gold tumbled 2.5 percent on

Wednesday to its lowest price since July after minutes of the

Federal Reserve's meeting last month showed the U.S. central

bank may have to slow or stop buying assets before a pick-up in

the job market.

Silver and platinum group metals also dropped sharply.

(Graphic: http://link.reuters.com/jej26t)

Before the Fed released its minutes, bullion was already

down sharply as rumors swirled that a large commodity hedge fund

had been forced to liquidate its holdings, which triggered a

broad sell-off in industrial commodities led by crude oil.

Selling accelerated after bullion slipped below two key

resistances at $1,600 and $1,575 an ounce. It completed a

bearish technical formation known as a 'death cross', when its

50-day moving average broke below its 200-day moving average.

'It's clear the funds are not coming in to support the

market, and I don't see any physical interest either. There has

been a clear rotation out of gold and other commodities into

equities,' said Bill O'Neill, partner of commodities investment

firm LOGIC Advisors.

Spot gold was down 2.5 percent to $1,564.05 an ounce

by 4:17 p.m. EST (2117 GMT), having hit $1,558.24, its lowest

since July 12.

U.S. gold futures for April delivery settled down

$26.20 at $1,578 an ounce, with trading volume about 50 percent

above its 250-day average, preliminary Reuters data showed.

The Federal Open Market Committee minutes said current U.S.

economic conditions might lead the policy-setting committee 'to

taper or end its purchases before it judged that a substantial

improvement in the outlook for the labor market had occurred' .

The Fed voted last month to maintain its third round of

quantitative easing, known as QE3, at an $85 billion monthly

pace. It said it would buy bonds until it saw a substantial

improvement in the outlook for the labor market, which remains

under pressure with the jobless rate at 7.9 percent.

'People are taking a step back and asking themselves 'Is the

Fed going to stop quantitative easing earlier?'' said Axel Merk,

chief investment officer of Merk Funds which manages $630

million in mutual fund assets.

Minutes from the December meeting also showed some

policymakers had been mulling a lessening or complete withdrawal

of Fed stimulus.

ECONOMIC OUTLOOK IN FOCUS

Gold has been seesawing between hopes of central-bank easing

which boosted its inflation-hedge appeal, and expected economic

improvement which dent its safe-haven status, said Jeffrey

Sherman, commodities portfolio manager of DoubleLine Capital,

which manages more than $53 billion in assets.

'I do not think the Fed will stop asset purchases in the

calendar year,' Sherman said.

Other money managers cited gold's pullback to anticipation

of a sharp move into equities and longer-yield Treasuries

because of a better global economic outlook.

U.S. equities fell on the Fed minutes on Wednesday, but the

benchmark S&P 500 index remained near its all-time high.

Silver fell 3.1 percent to $28.52 an ounce, platinum dropped 2.6 percent to $1,644.25, and palladium

was down 3.3 percent at $735.97 an ounce.

4:17 PM EST LAST/ NET PCT LOW HIGH CURRENT

SETTLE CHNG CHNG VOL

US Gold APR 1578.00 -26.20 -1.6 1558.10 1609.20 240,763

US Silver MAR 28.622 -0.800 -2.7 28.255 29.615 93,202

US Plat APR 1647.10 -50.40 -3.0 1636.10 1699.00 21,235

US Pall MAR 736.40 -27.75 -3.6 728.50 766.30 12,854

Gold 1564.06 -40.15 -2.5 1558.24 1609.21

Silver 28.520 -0.900 -3.1 28.310 29.640

Platinum 1644.25 -43.50 -2.6 1639.75 1696.00

Palladium 735.97 -25.25 -3.3 732.52 764.00

TOTAL MARKET VOLUME 30-D ATM VOLATILITY

CURRENT 30D AVG 250D AVG CURRENT CHG

US Gold 255,585 190,934 173,209 16.18 1.11

US Silver 129,739 51,535 52,552 23.18 1.53

US Platinum 21,709 14,478 11,126 17.32 -0.11

US Palladium 14,830 5,872 4,796

(Editing by Chizu Nomiyama and David Gregorio)

Keywords: MARKETS PRECIOUS/

(Frank.Tang@thomsonreuters.com)(+1 646 223 6126)(Reuters Messaging: frank.tang.thomsonreuters@reuters.net)

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