NEW YORK: Gold dropped on Monday as uncertainty about the duration of the Federal Reserve's economic stimulus program decreased bullion's appeal as a hedge against inflation.
The metal remained under pressure after two top Fed officials on Friday suggested the US central bank may halt its bullion-friendly asset purchases by the end of 2013 due to a better economic outlook.
"Any time there is any concern about Fed tightening, those nervous gold investors leave the market very quickly," said James Dailey, portfolio manager of TEAM Financial Asset Management.
However, signs of disappointing US economic growth suggest the Fed will not change course any time soon, Dailey said.
Gold, used by investors as a hedge against inflation brought about by central-bank stimulus, has been particularly sensitive to any indications that the Fed might end its purchases of Treasury securities and mortgage-backed securities.
Losses in US stocks on speculation about weaker corporate earnings also dragged gold prices lower, analysts said.
Spot gold was down 0.6 percent at $1,646 an ounce by 1:59 p.m. EST (1859 GMT)
US gold contract for February delivery settled down $2.60 at $1,646.30, with trading volume 20 percent below its 30-day average, preliminary Reuters data showed.
On Friday, bullion ended sharply off its 4-1/2 month low near $1,625 after a Labor Department report showed the US jobless rate held steady at 7.8 percent in December.
The Fed is currently buying $40 billion in mortgage-backed securities and $45 billion in Treasuries each month in a bid to push down borrowing costs and spark faster growth. It has said the program will continue until it sees a sustained upturn in the jobs market.
FED IN FOCUS
Analysts said the price of gold could quickly rebound if data suggests the pace of the US economic recovery is too slow to justify withdrawal of Fed stimulus.
"It's difficult to make assumptions ... whether the FOMC minutes represent a material change of monetary policy from the Fed, and we are well aware that an off-the-cuff remark by Fed Chairman Bernanke could reverse the markets in an instant," TD Bank strategists said in a note.
On Friday gold slid to its lowest level since late August after minutes from the December meeting of the Federal Open Market Committee showed several top officials favored slowing or stopping the stimulus program "well before" the end of the year.
Among other precious metals, silver was down 0.5 percent to $30.07 an ounce. Platinum eased 0.2 percent to $1,549.50 an ounce, and palladium dropped 2.2 percent to $667.72 an ounce.
Center>Copyright Reuters, 2013
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