By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold fell below $1,200 on Friday to its lowest since August 2010 before recovering, and is on track to post its worst quarter since at least 1968 on persistent worries over the U.S. Federal Reserve's plan to wind down its monetary stimulus.
Bullion has taken a beating since the beginning of last week - losing as much as 15 percent, or about $200 an ounce - after Fed Chairman Ben Bernanke laid out a strategy to roll back the bank's $85 billion monthly bond purchases in the face of a recovering economy.
The lower prices have failed to boost physical demand in Asia, traditionally the biggest buyer of gold, and investors have continued to flee exchange-traded gold funds.
Spot gold fell to a near three-year trough of $1,180.71 before gaining 0.4 percent to $1,204.46 by 0701 GMT. Comex gold fell $8.50 to $1,203.10.
Traders said stop-loss orders were triggered when gold was sitting on the edge of $1,200. A quarter-end selling spree by funds also hurt.
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Prices initially failed to find support even after markets in China, the world's second-biggest gold consumer, opened but saw some gains after bargain-hunters emerged.
"Demand is not as much as we anticipated," said Peter Tse, director at ScotiaMocatta in Hong Kong. "The stops have already been hit so we might have reached short-term lows for now."
Gold is down 25 percent for the April-June period, its biggest quarterly loss ever, based on Reuters data that dates back to 1968. If gold closes near its three-year low on Friday, it would be the metal's worst weekly performance since 1983.
Bullion has fallen around 28 percent this year - its worst since 1981 - as investors snubbed its inflation-hedge appeal, with a recovering economy stirring fears of an end to central bank support. For a graphic: https://bsmedia.business-standard.comlink.reuters.com/vag39t
TEPID DEMAND
When gold prices fell the most in 30 years in April, strong physical demand was key in supporting prices, but not this time.
Gold's plunge to three-year lows is drawing only a muted response from global consumers, who are waiting for prices to stabilize.
"Chinese buying is not strong enough to support prices. Instead, speculators in China are selling," a Sydney-based trader said.
Shanghai gold futures fell for the ninth straight session. They dropped nearly 4 percent.
In Hong Kong and Singapore, premiums over London spot prices rose only slightly to $4 and $3 from earlier this week, as demand has not picked up as much as expected, dealers said.
Tokyo premiums remained stable at $2 an ounce.
Demand in India, the top consumer, also saw just a small increase. But tight supplies due to government restrictions on imports is prompting higher premiums.
Fed officials continued to give mixed signals on when the central bank should taper bond purchases.
Concerns over a credit crunch and economic growth in China also weighed on investors. China's central bank is squeezing funds out of the money market, forcing banks to borrow money at historic interest rate levels.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, are near four-year lows.
Precious metals prices 0702 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1204.46 4.97 +0.41 -28.07
Spot Silver 18.81 0.36 +1.95 -37.88
Spot Platinum 1307.74 -5.76 -0.44 -14.81
Spot Palladium 643.97 -1.03 -0.16 -6.94
COMEX GOLD AUG3 1203.10 -8.50 -0.70 -28.21 64540
COMEX SILVER JUL3 0.19 0.00 +1.28 -99.38 1410
Euro/Dollar 1.3052
Dollar/Yen 98.83
COMEX gold and silver contracts show the most active months
(Editing by Ed Davies and Muralikumar Anantharaman)