By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold was trading near three-week lows on Wednesday after strong U.S. trade data and comments by a Federal Reserve official stoked fears the central bank could start tapering its stimulus from next month.
The metal had fallen as much as 0.6 percent earlier in the day to its lowest since mid-July but pared losses after Chinese buyers emerged to pick up bullion at cheaper prices.
"Trading in the month of August is always a tough one as thin market conditions are easier to manipulate," said a trader in Singapore.
Traders are watching technicals as gold prices have declined below the key $1,300 level. They had expected gold to drop to $1,245 after prices fell through Tuesday's lows.
Bullion has lost nearly a quarter of its value this year after 12 annual gains as markets anticipate a reduction in the Fed's $85 billion monthly bond purchases. The commodities-friendly stimulus had pushed prices to all-time highs in 2011.
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With physical demand at subdued levels during the seasonally soft summer period, investors are closely monitoring economic data from the United States to gauge the timing of stimulus tapering.
Spot gold had dropped 0.1 percent to $1,280.19 an ounce by 0722 GMT after hitting a trough of $1,273.14 earlier.
The Fed will probably reduce its massive bond-buying stimulus programme later this year, and depending on economic data could do so as early as September, Chicago Fed President Charles Evans said on Tuesday.
Evans was the third Fed official in two days to suggest a September pullback was still on the table.
The U.S. economy likely grew faster than initially reported in the second quarter, thanks to a sharp narrowing in the trade deficit to its lowest in more than 3-1/2 years in June as exports touched a record high and imports fell.
SLOW DEMAND
"Gold prices will trend lower on reduced demand from both consumers and investors in view of low inflationary risks, a rising dollar and pending tapering," said Helen Lau, senior mining analyst at UOB-Kay Hian Securities.
Shanghai gold futures closed down 1.5 percent on Wednesday, adding to losses from the previous session.
China's net gold imports from key supplier Hong Kong slipped about 4 percent in June from a month ago, although purchases held above 100 tonnes.
Gold premiums in India eased on Tuesday due to a lack of buying support in the physical market, as traders survived on old stocks amid an absence of fresh imports.
Precious metals prices 0722 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1280.19 -1.10 -0.09 -23.55
Spot Silver 19.40 -0.08 -0.41 -35.93
Spot Platinum 1420.24 -4.26 -0.30 -7.48
Spot Palladium 717.97 -2.53 -0.35 3.75
COMEX GOLD DEC3 1279.70 -2.80 -0.22 -23.64 28351
COMEX SILVER SEP3 19.38 -0.15 -0.76 -36.07 5589
Euro/Dollar 1.3287
Dollar/Yen 96.95
COMEX gold and silver contracts show the most active months
(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)