Gold eased towards $1,330 an ounce in Europe on Wednesday as the dollar firmed versus the euro after a report said the Federal Reserve would likely adopt a gradual approach to further US monetary easing.

Spot gold was bid at $1,333.15 an ounce at 1110 GMT, against $1,338.70 late in New York on Tuesday. US gold futures for December delivery fell $5.20 an ounce to $1,333.40.

The metal hit a record $1,387.10 an ounce earlier in October as expectations that the Fed would pursue a second round of quantitative easing pressured the dollar, but prices have slipped as investors worried the impact of this has already been too heavily priced into currencies and gold.

'I think the Fed won't go as big on QE2 as people have been expecting, and i think the dollar (will) firm into year-end,' said Simon Weeks, head of precious metals at the Bank of Nova Scotia. 'It's just a question of time before we are lower.'

'The trend turned to the downside before the G20 and it still has a long way to go before it is finished,' he added. 'I suspect that we will eventually head to $1,271 which is 50 per cent of the move from the lows in late July to the highs the other day.'

Gold typically falls when the dollar strengthens, and vice versa, as a firmer US unit curbs the metal's appeal as an alternative asset. Like all dollar-price commodities, it also becomes more expensive for other currency holders.

The dollar rose 0.3 per cent against the euro on Wednesday after the Wall Street Journal said the Federal Reserve was likely to unveil plans for gradual Treasury purchases at its policy meeting next week.

The newspaper said the Fed was likely to reveal a programme of US Treasury bond purchases worth several hundred billion dollars over several months. This compares to some investors' expectations for QE to approach $1 trillion.

Bargains hunted

In India, bullion traders snapped up bargains to meet festival demand as Dhanteras, one of the biggest gold-buying occasions of the year, approached in November.

A  newspaper run by China's Ministry of Commerce said on Wednesday the country should significantly boost its state gold reserves to a level equal to that held by the United States, citing a local researcher.

'The researcher's comment doesn't constitute an official statement from China, and the quantities mentioned at close to three years' worth of global mine production are excessive,' said UBS analyst Edel Tully in a note.

'This nonetheless supports the general market consensus that China will add to its gold reserves. While the implications of potential QE and its size have monopolised market attention, the China report reminds us that the current mood amongst central banks, particularly in Asia, is to increase exposures to gold.'

Among other precious metals, palladium was at $622.49 an ounce against $620.63, having earlier touched its highest since 2001 at $636.25 an ounce. The autocatalyst metal is one of this year's best-performing commodities.

Silver was bid at $23.73 an ounce against $23.82.

The US Commodity Futures Trading Commission said that there have been attempts to influence silver prices, but did not provide any detail on the status of a probe into price manipulation in silver that started in 2008.

The US commodity futures regulator is looking into claims by a trader in London that JPMorgan Chase & Co was involved in manipulative silver trading, the Wall Street Journal said, citing a person close to the situation.

Platinum was at $1,692.50 an ounce against $1,694.95. – Reuters