Gold fell one per cent on Monday after the bullion market failed maintain a rally set off by former Treasury Secretary Lawrence Summer's decision to withdraw as a candidate to lead the US Federal Reserve.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
The yellow metal rose after the announcement, which removed market uncertainty about a long confirmation process of the already controversial Summers as the successor to Fed Chairman Ben Bernanke.
But the rally faded, even though the Dow rose over 100 points, or nearly 1 per cent. Bullion investors appear to have turned their attention to the tapering of the Fed's massive bond-purchase program after its September policy meeting on Wednesday.
The consensus is that the Fed will reduce its bond purchases by $US10 billion ($10.7 billion) to $US75 billion a month.
"A major driver that has been weighing on gold is that some investors are staying on the sidelines trying to adjust positions before the Fed announcement," said Michael Matousek, head trader at US Global Investors, which has about $US1.2 billion in mutual-fund assets.
Spot gold was down 1.1 percent at $US1,312.09 an ounce, having earlier fallen by as much as 1.4 per cent to $US1,307.60.
Traders said gold rose in a knee-jerk response to the Summers news because he was widely regarded as being more "hawkish" than current Fed Vice Chairman Janet Yellen, who is also a candidate and is now deemed the new front-runner.
Traders now see a 55 per cent probability that the first rate increase will take place in December 2014 and 68 percent chance in January 2015, according to CME Group's Fed Watch, which generates probabilities based on the price of federal funds futures traded at the Chicago Board of Trade.
"The prospect that the Fed's tone will remain dovish is good for equities but not for gold at the moment, as you would need a combination of yields dropping and inflation expectations moving up to really see gold stronger," Credit Suisse analyst Karim Cherif said. US gold futures for December delivery settled up $US9.20 at $US1,317.80 an ounce, with trading volume about 10percent below its 30-day average, preliminary Reuters data showed.
Easing geopolitical tensions also hurt gold's safe-haven appeal. Analysts said it is now less likely there will be US-led military attacks on Syria in response to a chemical weapons attack blamed on President Bashar al-Assad.
Reuters
