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Gold slipped on Monday, with markets expecting the Federal Reserve to begin tapering its commodity-boosting monetary stimulus as soon as this month despite the withdrawal of Lawrence Summers from the race to head the US central bank.
The consensus is that the Fed will initially reduce its bond purchases, now $85 billion a month, by $10 billion and will announce the reduction to its quantitative easing (QE) after its September 17-18 meeting.
The withdrawal of former US Treasury Secretary Summers from the Fed race could suggest a more gradual approach to tightening monetary policy, with potential front-runner Janet Yellen perceived as a more dovish contender.
The news sent the dollar to a near-four-week low against a basket of currencies, US Treasury yields to a one-month lows and European shares to five-year highs but it had limited impact on gold, which rose nearly $10 an ounce before giving up gains.
Spot gold fell by as much as 1.4% to a session low of $1,307.60 an ounce earlier and was trading at $1,317.94, down 0.6% by 1353 GMT. It posted its steepest weekly drop in more than two months last week, falling by 4.6%.
"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.
Gold and equities have both been boosted by quantitative easing (QE) programmes, as these increased financial market liquidity. Bullion prices have lost 19% this year after the Fed signalled it would start reining QE.
"Although the Fed will do anything to minimise the impact, it will have to start tapering this month otherwise it will be in for a lot of criticism," Societe Generale analyst Robin Bhar said.
INVESTOR SENTIMENT BEARISH
Easing geopolitical tensions in Syria also hurt gold's safe-haven appeal on Monday.
The United States agreed to call off military action against Syria under a deal with Russia to remove President Bashar al-Assad's chemical weapons stockpile.
Hedge funds and money managers slashed bullish bets in futures and options in the US gold market for the first time in five weeks, a weekly report by the Commodity Futures Trading Commission showed on Friday.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.66% to 911.12 tonnes on Friday, the biggest decline since August 1.
In other precious metals, spot silver, which fell to a one-month low of $21.35 an ounce on Friday, mirrored gold's moves and was trading down 0.7% at $22.04. It fell nearly 7% last week, its biggest weekly loss since mid-June.
Spot platinum fell 0.3% to $1,445.74 an ounce, while spot palladium rose 1.7% to $708.47 an ounce, having touched a near-two-week high of $712 earlier.
