* Gold down for 3rd day, near two-year low of $1,321.35 * Fed may cut bond buying if U.S. economy strong - Bernanke * China PMI shrinks for first time in 7 months (Adds quotes, updates prices) By A. Ananthalakshmi SINGAPORE, May 23 (Reuters) - Gold fell for a third straight session on Thursday after U.S. Federal Reserve Chairman Ben Bernanke hinted at reducing an $85 billion bond-buying programme, which has increased the precious metal's appeal as a hedge against inflation. While Bernanke said the central bank needs to see further progress in the U.S. economy before the Fed scales back monetary stimulus, he also added that a decision to adjust it could come in the "next few meetings" if the economy looked set to maintain momentum. Down nearly 20 percent this year, gold could come under more selling pressure as investors increasingly price in a stimulus cut ahead of the Fed's next policy meeting on June 18-19. Spot gold fell 0.06 percent to $1,367.66 an ounce by 0327 GMT. It hit a low of $1,356.24 earlier in the session, near a two-year low of $1,321.35 plumbed in April. "It does not matter if the tapering off (of the bond buying) is in this quarter or next or delayed by six months," said Dominic Schnider, an analyst at UBS Wealth Management. "If you know it's tapering off anyhow in the next 12 months, people do not want to be in there anymore." Sustained outflows from exchange-traded funds also point to more downside for gold prices. Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.3 percent to 1,020.07 tonnes on Wednesday, the lowest in more than four years. U.S. gold futures eased 0.06 percent to $1,366.60 an ounce. Spot silver, platinum and palladium tracked gold lower. DEMAND CONCERNS China's factory activity shrank for the first time in seven months in May as new orders fell, a preliminary survey of purchasing managers showed, adding to concerns that a recovery in the world's second-largest economy and No. 2 gold consumer is sputtering. The contraction is an "alarming sign", said UBS' Schnider at a time when physical gold demand in Asia has been normalising. Premiums for gold bars hit a record high in Asia on Wednesday as lower spot prices lured more buyers, mainly in China, amid tight physical supplies. Top gold buyer India, which had seen gold imports jump 138 percent in April, is facing a slowdown as the peak wedding season comes to an end and its central bank imposes new rules to reduce a deficit.
Precious metals prices 0327 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1367.66 -0.88 -0.06 -18.33 Spot Silver 22.16 -0.03 -0.14 -26.82 Spot Platinum 1462.99 -2.51 -0.17 -4.69 Spot Palladium 739.22 -4.78 -0.64 6.82 COMEX GOLD JUN3 1366.60 -0.80 -0.06 -18.45 19532 COMEX SILVER JUL3 22.12 -0.36 -1.59 -26.84 4951 Euro/Dollar 1.2840 Dollar/Yen 103.11 COMEX gold and silver contracts show the most active months (Editing by Manolo Serapio Jr. and Himani Sarkar)
