PRECIOUS-Gold drops from 3-month high on profit taking – Reuters

* Gold pares losses after slipping 1 pct in early trade

* Outlook for Fed policy still closely watched

* Physical gold demand in India, China lackluster

(Adds comment, byline, NEW YORK dateline; updates prices)

By Marcy Nicholson and Jan Harvey

NEW YORK, Oct 13 (Reuters) – Gold rose on Tuesday,
recovering an earlier 1 percent slide on expectations the
Federal Reserve will not lift U.S. interest rates this year,
which helped push the dollar to three-week lows against the

Chinese trade data reinforced views that the world’s
second-largest economy continues to lose momentum, but
healthcare stocks kept Wall Street afloat.

Spot gold was up 0.2 percent at $1,165.91 an ounce at
1:57 p.m. EDT (1757 GMT), off an earlier low of $1,151.16, and
below Monday’s three-month high. U.S. gold futures for
December delivery settled up 90 cents an ounce at $1,165.40.

“Prices at $1,150-1,160 are based mainly on pessimism over
how soon the Fed is going to hike rates,” Natixis analyst
Bernard Dahdah said. “Some of the larger banks have said it will
probably be taking place next year, so I can see prices at these
levels (for a while).”

Gold has rallied nearly 5 percent since a surprisingly weak
U.S. nonfarm payrolls report on Oct. 2 prompted the market to
shift expectations of a Fed rate hike to 2016.

The metal, as a non-interest-paying asset, benefited from
ultra-low interest rates following the financial crisis, but
fell to 5-1/2 year lows this year on expectations that U.S.
rates would rise for the first time in nearly a decade.

The Fed will hold two more policy meetings in 2015, on Oct.
27-28, and then in December.

In one of the strongest defenses yet of a go-slow approach
to rate policy, Fed Governor Lael Brainard said on Monday that
the U.S. central bank should hold off on any rate hike until it
is clear that a global slowdown, trouble in China and other
international risks will not push the U.S. recovery off course.

On the physical markets, gold discounts in India widened to
a three-month high this week while buying elsewhere in Asia was
also lackluster.

MKS said in a note on Tuesday that gold and silver were
initially dragged lower by platinum overnight in Asia, though
they briefly rebounded prior to the opening of the Shanghai Gold

In other precious metals, platinum and palladium remained
lower, with platinum down 0.6 percent at $986.75 an ounce
and palladium down 1.5 percent at $680 an ounce.

“Those are markets that were slightly over-extended. That’s
profit taking,” said Eli Tesfaye, senior market strategist for
brokerage RJO Futures.

Silver was up 0.5 percent at $15.90 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore;
Editing by Tom Heneghan and Chris Reese)