Gold falls sharply after initial rally

SINGAPORE  (Sept 17)   Gold fell 1.4 per cent per cent in Asian trading after the bullion market failed to maintain a rally set off by former Treasury Secretary Lawrence Summer's decision to withdraw as a candidate to lead the US Federal Reserve.

The yellow metal rose after the announcement, which removed market uncertainty about a long confirmation process of the already controversial Summers as the successor to Fed Chairman Ben Bernanke. But the rally faded, even though the Dow rose over 100 points, or nearly 1 per cent.

Spot gold was down 1.4 per cent at $US1,306.38 an ounce on Tuesday morning.

Bullion investors appear to have turned their attention to the tapering of the Fed's massive bond-purchase program after its September policy meeting on Wednesday.

The consensus is that the Fed will reduce its bond purchases by $US10 billion ($10.7 billion) to $75 billion a month.

"A major driver that has been weighing on gold is that some investors are staying on the sidelines trying to adjust positions before the Fed announcement," said Michael Matousek, head trader at US Global Investors, which has about $1.2 billion in mutual-fund assets.

However, many large speculators are waiting for the FOMC announcement Wednesday afternoon before making a commitment.