SINGAPORE: Gold dropped on Monday, with investors jittery ahead of key US data this week that could provide clues on when the Federal Reserve will begin scaling back its monetary stimulus.
US data including nonfarm payrolls, third quarter GDP and manufacturing PMI will be released this week, giving more insight into the strength of the economy.
A strong recovery could prompt the Fed to begin cutting back its $85 billion in monthly bond purchases, denting gold's appeal as a hedge against inflation. The US central bank next meets on Dec. 17-18, when it could decide the fate of its stimulus.
"The market is already short and people are being careful not to go too short before the holiday season," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. "I don't expect much movement (in gold prices) until the new year."
But the nonfarm payroll report on Friday could prompt some price action, Ikemizu said.
Spot gold had fallen 0.4 percent to $1,247.55 an ounce by 0236 GMT, after posting its biggest monthly loss since June.
The metal has lost over a quarter of its value this year due to record outflows from gold-backed exchange-traded funds as investors shifted money to rallying equities.
Markets seem to have already priced in a possible stimulus tapering from this month due to strong economic data, with gold prices trading below $1,300 an ounce for over three weeks.
"Gold opened lower and is likely to stay below $1,250 for most of the day as investors look forward to the slate of economic releases this week," Phillip Futures analysts said in a note. Although they added that bearish sentiment towards the metal may be too strong.
Physical demand has picked up at lower price levels but not to the same extent as earlier this year when a $200-an-ounce drop in two days prompted record levels of buying.
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