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Pre-Fed liquidation knocks NY gold to 7-week low

NEW YORK, June 24 (Reuters) - COMEX gold fell to its lowest in almost 7 weeks Tuesday as the Federal Reserve opened 2-day interest rate talks and speculators exited stale long positions due to uncertainty over the size of an expected easing.

Much of the selling was technical, while upbeat consumer sentiment data and a firm stock market helped erode gold's safe-haven underpinning. The euro was sidelined early on, but declines in gold and the currency later fed off each other.

August gold closed down $6.70, or 1.9 percent, at $346.70 an ounce. It fell from an early high of $355.40 to $346.30, its lowest print since May 8.

"A lot of the move early was with a fairly stable euro," said James Pogoda, a vice president of precious metals at Mitsubishi International Corp. "The euro seemed to play catch up, almost."

Stop-loss selling kicked in around $352 and again on the break below $350, which accelerated the move. Chart watchers said the drop snapped an up-trend in place since gold bottomed at $320.50 on April 7. It topped at $375.80 on May 27.

Estimated gold turnover was a frantic 80,000 contracts.

"It broke through the 100-day moving average on August, so it's just technical selling," said a trader, adding, "It broke through a pretty big trend line that started at the beginning of April."

Spot gold last traded at $345.70/6.45, down from $352.80/3.30 at Monday's close and London's afternoon fix at $348.25.

The market considers a reduction in the 1.25 percent federal funds target rate a near certainty, amid worries about deflation and slow growth. But it is unsure whether the Fed will cut an aggressive 50 basis points or just a quarter percentage point. An announcement is expected around 1415 EDT on Wednesday.

The euro fell below $1.15 to its lowest since May 16. A falling euro erodes the bullion buying power of European investors.

The Dow Jones industrials were up 63 points at mid-afternoon, buoyed after the Conference Board's June consumer confidence index came in at 83.5, little changed from May's 83.6 but above the anticipated 82.4.

Better-than-expected data since last week has many in the market now leaning toward a smaller cut from the Fed, which would be less gold bullish and less bearish for the dollar.

The Fed has eased 12 times since early 2001, bringing the fed funds rate to its lowest in 42 years. Low yields on dollar deposits drove investors into the euro and currency alternatives like gold.

Gold hit 6-1/2 year highs in February near $390 an ounce, partly due to the weak dollar, before long liquidation drove prices down to the April lows. Its late May rally most of the way back to the highs created an extremely overbought situation on the COMEX which is now being alleviated.

July silver fell 4.3 cents to $4.515 an ounce, trading $4.565 to $4.49. Spot silver closed at $4.51/53, down from $4.55/57 late Monday. The fix was at $4.54.

NYMEX July platinum rose $4.10 to $673.00 an ounce. Spot platinum was at $668.00/673.00.

September palladium went down $1.85 to $178.20 an ounce. Spot palladium was last quoted at $174.50/180.50.