PRECIOUS-Gold falls on oil drop; Fed meeting in focus

* U.S. service sector activities up

* Crude oil drops after Goldman cuts forecast

* Expectation that Fed will keep rates low underpins (Updates market activities)

By Frank Tang and Jan Harvey

Gold dropped on Monday as crude oil prices tumbled, but losses were limited by recovering physical demand and expectations the Federal Reserve will wait before hiking interest rates.

The metal came under pressure after U.S. data showed services sector activity dipped to a six-month low in October, and a sharp pullback in crude oil after Goldman Sachs slashed its price forecasts, citing lackluster global demand.

Gold, however, was underpinned as China's net gold imports from Hong Kong jumped to a six-month high in September.

"Evidence of recovering physical demand in Asia in response to the current low price environment gives confidence that the $1,180 support level may hold," said Jonathan Butler, precious metals strategist at Mitsubishi Corp International.

Spot gold was down 0.1 percent at $1,229.23 an ounce by 2:10 p.m. EDT (1810 GMT), having moved in a narrow range of less than $6. The metal has now dropped in its fourth consecutive session.

U.S. COMEX gold futures for December delivery settled down $2.50 an ounce at $1,229.30. Volume is lighter than usual, preliminary Reuters data showed.

Investors are focusing on the Fed's latest policy statement later this week, in which the U.S. central bank will likely reinforce its stated willingness to wait for a long while before hiking interest rates, after a volatile month in financial markets.

Any sign the Fed will raise interest rates later than currently expected could benefit gold, as it will keep the opportunity cost of holding non-yielding bullion low for longer.

Gold's outlook will depend largely on the two-day Fed meeting to be concluded on Wednesday, when the U.S. central bank is also widely expected to end its bond-buying stimulus program that first began in late 2008 known as quantitative easing (QE).

"Although this is clearly a bearish development for gold as it implies the beginning of monetary policy normalization, it may have already been priced in," said Butler.

Bullion traders were also closely watching investors' positions in gold funds. The world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, said its holdings fell 4.5 tonnes to 745.39 tonnes on Friday, a six-year low.

That brought the fund's total outflows last week to 15.5 tonnes, the most of any week since July of last year.

Among other precious metals, silver edged up 0.1 percent to $17.14 an ounce. Platinum rose 0.8 percent to $1,250.50 an ounce and palladium was up 0.8 percent at $782 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by Chris Reese and Bernadette Baum)

Source:-  http://www.reuters.com/article/2014/10/27/markets-precious-idUSL4N0SM38820141027