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Analyst says hedge funds reduce gold allocations

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Gold down over 3% so far this week

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Strong Asian cenbank demand still supports gold

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US PCE report due on Friday

(Recasts as of 1001 GMT)

By Harshit Verma

April 24 (Reuters) - Gold prices fell for a third

consecutive session on Wednesday, partly weighed down by hedge

funds' reductions amid easing concerns of a major escalation of

the Middle East crisis, while investors awaited key U.S.

economic data later this week for interest rate clues.

Spot gold fell 0.3% to $2,314.95 per ounce by 1001

GMT, after having hit its lowest since April 5 in the previous

session. U.S. gold futures fell 0.6% at $2,328.40.

Part of the reason that prices are coming off is that hedge

funds have reduced their allocation for gold, while some of the

tensions in the Middle East have faded a bit in recent days,

UBS analyst Giovanni Staunovo said.

The U.S. dollar regained some ground on Wednesday while

benchmark Treasury yields also rose, making the dollar-priced

bullion less attractive for other currency holders and as an

investment option compared with debt. .

Gold prices have dropped over 3% since the start of this

week.

However, strong demand from Asia, primarily China, along

with the desire of central banks in emerging markets to

diversify more in gold, is preventing prices from falling

further, Staunovo said.

Spot gold may retest resistance at $2,336 per ounce

as it managed to stabilize around key support at $2,311,

according to Reuters' technical analyst Wang Tao.

Investors are now looking forward to the U.S. gross domestic

product data due on Thursday and the Personal Consumption

Expenditures report due on Friday for fresh clues on the Federal

Reserve's rate trajectory.

In other precious metals, spot silver fell 0.5% to

$27.13 per ounce.

"We expect silver to outperform gold as investment flows

surge. Slower mine production growth and strong industrial

demand suggest supply is lagging demand, which will keep the

market in a structural deficit," ANZ said in a note.

Spot platinum rose 0.7% to $913.85, while palladium

edged 0.1% lower to $1,018.62.